Small Business Center

The Basics of Business Bookkeeping

June 10th, 2009 by Paul O'Brien

Don’t Be Afraid, its Only Bookkeeping

Many small business owners are daunted by the thought of bookkeeping. I know I was. But don’t be like me and sit, paralyzed with fear, clutching all your bank statements in one hand and your receipts in the other and hoping it will all just go away.

Yes, all those spreadsheets, bank statements and tax tables can look like an insurmountable obstacle, but do not despair. First, let’s break bookkeeping down a little:

Bookkeeping is simply the act of keeping track of your business’s income and expenses along with the financial information necessary to file taxes

It sounds a little easier that way, doesn’t it? Also, while there is a right way to keep track of your income and expenses (or risk incurring the wrath of the tax collector), there is no right way to literally keep your books. If you love paper, you are free to record your income and expenses manually on a paper ledger or in a notebook. Or if you are an Excel fanatic, feel free to keep your books in a spreadsheet. Of course, if you are like most small business owners and cannot find enough hours in the day, you probably want something a little faster and more automated. In that case a bookkeeping software or web application like the user-friendly Outright.com is a good bet.

After you have decided how you are going to keep your books, the next step is to bite the bullet and get started. This process is relatively simple, too:

·         Keep track of all of your business income and expenses

·         Summarize all income and expenditures on a periodic basis (weekly, monthly, etc.)

If you are not a paperwork person, both of these steps can sound like a hassle.  Sure, it does take a little time out of your day or week to enter income and expenses into a ledger or web application, but you will often find that keeping track of your books and reviewing them on a regular basis comes with surprising results.

Regularly reviewing your business’s books actually shows you where your finances have room for improvement.  Did you pay more for “business lunches” than you actually brought in last month? Or are you a one-person show who finds yourself having to buy an entire case of paper every week? It sounds like there could be some problems there.  Luckily by keeping good books and periodically reviewing them, you can catch those errors and, because you are a nimble small business, quickly adjust your habits.

Keeping flawless books is also imperative when tax time rolls around. If you use an accountant, she will thank you for presenting her with clear, easy to understand financials. You will also save money. For some reason, those pesky accountants usually charge extra when they are forced to root around in your receipt shoebox to get your taxes done. And if you file your taxes yourself, well-kept books can mean the difference between frantic all-nighters hugging a calculator and a relatively painless tax time experience.

Bookkeeping does have its aggravations, but if you think of keeping books as simply recording your business’s financial activities, and if you look at financial reports as a way to help your business learn from mistakes and grow, then perhaps this very necessary business task may become just a little less burdensome.

 

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