The 6 items you need for small business bookkeeping.
[If you are a self-employed freelancer, independent contractor, or solopreneur please read our How to do Bookkeeping for the Self-Employed article.]
1. Cash Flows. Every small business must keep careful track of its present and future cash flow. It is very easy for a profitable business to go under because it does not have enough cash on-hand to meet its current financial obligations.
2. Accounts Ledger. Create a ledger, a complete record of financial transactions for a company, with the current balance of all of your financial accounts. You can do this in a ledger book, Microsoft Excel, or an online professional accounting software like QuickBooks Online. Most businesses carry accounts – such as a checking account, cash used for small expenses, or a credit card account – used for recording revenues and expenditures. Record all payments made from these accounts in your ledger. If you find it difficult to keep accurate and complete records on your own you can sign up for an online accounting service like ALOEwerx.
3. Accounts Payable. Enter any invoices you receive into your books to avoid missing payments and allocate costs to jobs. When invoices have been entered, you can create a payment schedule of all future payments anticipated by your business. You can also use this for budgeting a company project. Maybe you need a new company vehicle so you set a payable account of $2,000 a month until you can save up enough money. It’s a great way to monitor your business expenses and avoid any late fees.
4. Accounts Receivable. Create an upcoming money collection schedule, so that you know what projects are currently being worked on and when you can expect to receive money for that project. This ledger helps with your cash flows and budgeting as well. Once you physically receive that amount you can then roll it over into your revenue account and take it out of your AR but not until you actually receive it, or you risk bouncing checks drawn against that amount.
5. Revenue Recognition. Record all money actually received by the business for any reason, with the exception of loans and investment funds. Loans and investments should be accounted in separate ledgers and not booked as revenue. Recording all revenue will help provide insight into business growth and make any potential audit easier.
6. Reconcile your accounts. It’s important to reconcile your ledgers with your bank statements at the end of the month to maintain accuracy. Most accounting software like QuickBooks Online will help you in matching up statements to payments and deposits that were recorded in your ledger.