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Small Business Bookkeeping Requirements

When you start your small business, you are excited to meet your first customer or client. Like every businessman, you also want to turn your business into a profit. In this excitement, when you start giving more attention to your business, usually you may forget to learn bookkeeping, especially if you have no strong mathematics.

Bookkeeping is a practice that helps you know how your business is doing. Moreover, it also helps in keeping you safe from the tax office.

If you want to run a small business to the path of profits, it is very important to learn bookkeeping. Just the basic understanding of bookkeeping can transform your small business. It is a process of keeping records and organising the financial transactions of your business.

With the right bookkeeping tools, you will automatically feel confident and safe for the business’s future. It also helps in a better understanding of the profitability. The best part is that you do not require becoming an overnight calculus expert, just go through this guide on bookkeeping basics, and it will help your small business to a great extent.

Always keep in mind that good record keeping is important for every business owner as it helps a lot in managing the cash flow and meeting the tax obligations easily. You will also get to know how your small business is doing.

By law, your records must:

  • Be in writing, whether electronic or on paper
  • Explain all transactions
  • Be in English or in a language that can easily be converted
  • Be kept for at least five years, while some records are required to be kept for a longer time.

Note:

If you do not keep the tax records properly and accurately, you may be likely to get penalties.

What is bookkeeping?

Bookkeeping is the process of recording and organising all the financial transactions of the business. The bookkeeper is an expert who is responsible for this process. It is one of the effective ways to determine whether your business is profitable or not. It helps in identifying the financial challenges at an early stage and gives you a chance to find the right solution to get out of any crisis.

It also helps in identifying the prime areas of profit expansion, which means the areas that are not possible to notice without clear financial reports.

Generally, the bookkeeper records all kinds of transactions, such as invoices, payments, manages all bank accounts and prepares financial statements. Many people get confused between bookkeeping and accounting. They are similar, but bookkeeping is the basic accounting process, while accounting put more emphasis on analysing the data.

Earlier, these tasks were managed in daybooks, cashbooks, or in journals, and then they were transferred in the ledger. But, these days, bookkeeping software has made everything easier and hassle-free. Now, there is no need to keep physical books when everything is recorded and stored in an electronic system.

It is very important to keep accurate and well-organized books for running your small business smoothly. It helps in:

  • Checking that you are making profits
  • Having reliable financial information for making budgeting decisions
  • Identifying if a cash crunch is coming so that you can take the necessary steps to avoid it
  • Finding incorrect payments or any fraud that may cost you more money
  • Completing accurate tax returns
  • Having well-organised financial information that makes it easier for you to work with your lenders, investors, accountants, and other parties.

Why small business bookkeeping services are important?

Bookkeeping  service for small business plays a great role in achieving the long-term success. It helps in providing accurate pictures of the ins and outs of all financial transactions. It includes everything, from the cash in your hand to the debts you owe. This way, you are able to get a better understanding of your business’s finances, which in turn helps greatly in making better decisions and planning for the future.

Accurate bookkeeping has its own importance as it helps in protecting your business. Suppose you are in dispute with a vendor or if you have any overdue bookkeeping, and if you have no clean financial records, there are chances of being at risk of paying settlements. Accurate and Overdue bookkeeping services work effectively in preventing or uncovering fraud from other parties, such as customers, vendors, or even employees.

In addition to this, it also saves your time, because each financial task of the business is managed properly.

How to keep records?

Bookkeeping allows you to keep invoices, payments, and all business transaction records on paper or on the electronic system. The rules and regulations are the same for both methods, but keeping record electronically ensures to make some tasks easier and smooth.

Electronic bookkeeping

If you use the right electronic bookkeeping software, you can:

  • Provide ready-made reports automatically
  • Tally amounts automatically
  • Create invoices, summaries, GST reports and income tax reports
  • Keep updated with the current tax rates and tax laws
  • Prevent keeping physical records
  • Keep backup of records in case of any natural disaster, such as flood, fire, etc.

Manual bookkeeping

This bookkeeping method involves the usage of a series of books or ledger accounts. These can easily be available from the local newsagent, office supply or book store. The benefits of manual bookkeeping include:

  • Cheaper bookkeeping method
  • Less chance of data corruption
  • A simpler system for beginners or those who are not familiar with accounting software
  • No chance of getting duplicate copies of the same records

Accounting software

The customised accounting software helps you in:

  • Keeping a record of all transactions
  • Calculating GST
  • Updating or modifying ledgers
  • Preparing financial statements
  • Generating invoices and other reports

Web-based bookkeeping

Web-based bookkeeping means using a cloud system to keep records of your financial transactions. It helps in:

  • Updating your books from any location
  • Providing automatic storage for all kinds of financial records
  • Accessing the cheaper digital option

You must know that the web-based bookkeeping method does have various security risks. So, many small businesses avoid using the cloud system to keep records of their finances.

Spreadsheet accounting

If you have a computer but do not have enough funds to buy accounting or bookkeeping software, the best idea is to prepare a series of spreadsheets for your accounts.

A reliable and experienced bookkeeper and accountant can help in maximising your business income. They focus on improving the financial health of your business.  They can also recommend the best system for you that fits your needs and budget perfectly.

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