Bookkeeping Basics for Startups
Whether you are your own bookkeeper, employ a trusted team to keep your books, or outsource through airCFO, bookkeeping basics are integral to any business.
Let’s be honest, bookkeeping isn’t everyone’s forte. But, for better or worse, it is a necessary beast to tame for any business owner. Whether you are your own bookkeeper, hire a trusted team to run the department, or outsource through a company like airCFO, bookkeeping is integral to any business. Mess it up and it may be the difference between success and failure.
Bookkeeping, as it turns out, is not for bibliophiles. Bookkeeping refers to the recording of financial transactions. This can include purchases, sales, receipts, invoices and all transactions between your business and your clients. Keeping a record of this sort is not only helpful when it comes to tax season and writing up quarterly reports. It is essential to keeping tabs on how your business is doing, what your profits or losses are, how to best improve in the coming quarters and, at the end of the fiscal year, it serves as an important record for taxes.
What Are the Basics of Bookkeeping?
Remember, bookkeeping is not the same as accounting, and covers different responsibilities. For startups and growing businesses, there are four basic steps to bookkeeping.
- Recording financial transactions
- Set up and manage ledgers and accounts
- Producing invoices
- Completing payroll
The first and most critical element of bookkeeping is recording every financial transaction. The basic form this takes is that of a general ledger — a document that tracks all cashflow, in and out. This can be as simple as a spreadsheet, but there are a lot of programs that make this easy and scale better.
A good bookkeeping practice is to frequently back up this information as well, generally with a cloud service.
Related to this, setting up accounts involves categorizing the accounts appropriately. It’s important to note if the account is an asset, liability, revenue or income, expense or expenditure, or equity. Once you’ve established this, it’s time to choose a program that will become your ride-or-die for bookkeeping and all things organization. Many choose Xcel, QuickBooks, or Xero.
The third step in this process is to produce invoices — this is a simple but critical element of bookkeeping that your business needs to take seriously. Prompt and accurate invoices are essential for the financial health of your enterprise.
The final basic element of bookkeeping is completing payroll — like invoicing, this is simple, but if neglected can be a serious problem for your startup as you move forward. Make this a priority!
Still panicking about keeping your books balanced and accurate? Here are some bookkeeping tips to help you through the days ahead.
Bookkeeping Tips to Help You Get Through It All
Set Aside Weekly Time to Go Over Finance
As with anything, practice makes perfect. By setting aside a few hours every week to go over your books, you are setting yourself and your business up for success.
Keep All Your Financial Records
This might seem like a no-brainer, but keep those receipts! Regardless if the transaction was virtual or ink and paper, they still may be important when referring back to how you achieved a certain number in your books or proving a transaction when tax season arrives. Make sure you’ve got a good handle on your financial statements.
Plan For Major Expenses
This tip will lead to major pat-yourself-on-the-back moments in the future. If you plan for major expenses, then you can always stay ahead of the books – and prepare for the worst.
Set Aside Money for Paying Taxes
You do this for your personal accounts, and you definitely need to do this for your business as well. Taxes are inevitable, but if you plan for them accordingly, keep flawless books and records and set aside money for them, you will be in great shape come April 15. For more advice on taxes, check out our blog on When & How to Make Estimated Tax Payments.
Leave an Audit Trail
In the unfortunate event of an audit, this could be a true business-saver. In addition to that, leaving a clear record with invoices and checks in numeric order, separating business and personal accounts and using a consistent system can help you retrace your steps if the need arises.
Bookkeeping for startups can seem like a daunting task, but if you follow the tips and tricks above, it will soon become second nature. Not sure where to start? Not a problem. Click the button below to schedule a quick call with our team of experts, and we’ll set you on the path to better bookkeeping