Most people starting a business start the business because they are good at providing the product or service they are selling. Bookkeeping is usually an afterthought but yet, a realized necessity to be able to provide the goods and services they wish to sell.
Here are the common considerations regarding bookkeeping that new business owners face.
Defining The Case for Bookkeeping
Essentially, bookkeeping is the official documentation of all financial transactions and inventory of assets.
Being thorough and complete is critical to the success of your venture. Your business can only be as efficient as your bookkeeping. Bookkeeping is how you identify successes and opportunities for growth when assessing the financial health of your business.
Your records need to be air-tight in order to create profit and loss reports and make accurate forecasts for revenue and expenses. This is beneficial for all your business’ stakeholders such as the IRS, creditors and the bank, and thus, keeps you in their good favor.
The better your bookkeeping, the better odds you have of not overpaying or underpaying taxes. In addition, being organized and rigorous helps you avoid unnecessary costs such as late fees and penalties.
Your books need to be a clear picture of what your business is making now and what you’re projecting. Your records also need to indicate how much money is owed to you by clients/customers. It should also reflect how much you owe to vendors and overhead. Good bookkeeping also accurately portrays the value of inventory. And your books should explicitly call out the financial performance of specific categories or business segments.
Bookkeeping Basics
Simply put, bookkeeping is a journal of every single financial transaction that accounts for every single penny coming and going through the business. Prior to the Digital Age, this was a physical book called a Ledger.
It’s best to hire an accountant to set up a process for your business to thrive in. An accountant will guide you on keeping up this process. Ultimately, your bookkeeping will inform your tax preparation and financial reporting.
If you’re a sole proprietor, your system need not be too complex and you may not even need to use automated bookkeeping (described next).
Automated Bookkeeping
You can be more efficient by automating bookkeeping. You can manage payroll and inventory, track and calculate expenses as well as transactions. You can generate reports, and create files to hand off to your accountant. Most bookkeeping software will show you visualizations of where your money is going. They will also help you stay on top of your cash-flow by data being easily accessible from a computer or smartphone.
Also, most bookkeeping software allows you to connect your books to your bank accounts so you can automate payments and track balances. And nowadays, software companies are automatically backing up all your data so you don’t have to fret about losing it.
Bookkeeping software can also automate invoicing and estimates. You can also track inventory and billable hours. And you can also accept payments online.
Automated software rapidly continues to become easier to use and includes more robust features.
Determining What Software Is Right For You
Most bookkeeping software companies differ in what they offer from each other (sometimes only slightly) and the individual software companies themselves usually offer tiered plans to more closely match the needs of your business.
To determine which one is right for you, you first want to talk to your accountant to see what they recommend. It’s best to select one your accountant is familiar with and has the software on their computer so they can open files you send them.
You’ll also want to take stock of your current bookkeeping needs as well as consider how your projections impact your ability to scale in regards to the right software for you. To determine your needs, make a list of all of your business’ functions and a list of all the reports you want to generate on a regular basis.
For example, do you need to track inventory, pay employees, track sales and profits specific to multiple locations? These are the type things you need to consider when deciding on what’s right for you. Most software vendors list out each feature and whether or not that feature comes with certain tiered plans. It may be helpful for you to refer to their list of features when creating your list of business needs.
Implementing an Automated System
Depending on the scale of the implementation, bringing in an automated system can have quite an impact on your business and staff. For example, if you’re the child of a Mom & Pop shop running the day-to-day business and Mom & Pop have always managed the books by hand, bringing in a new software system can be a steep learning curve. Training and lots of communication prior to the implementation is key.
A new automated bookkeeping system should be integrated slowly with a phased approach. Should your automated system require onsite hardware such as servers, routers and wireless backup drives, you’ll want to make sure you have adequate housing for it free of moisture and lots of places to safely plug in the equipment.