5 Tips for SME Bookkeeping
If you are not a fan of playing with numbers and or you are not a professional accountant, bookkeeping is not going to be a fun-game for you. But identifying a specific path for your “small business bookkeeping”, early habits will save you from costly errors and system overhauling in later steps.
After having enough interviews with different “one man show businesses” we have figured out that having formal records is less costly and more easy than “remembering” tiny bits of information like receivables and payable and at the end of year hire a tax specialist. Remembering records is always risky and costly because missing one receivable can cost you more than having a system in place.
We are listing down 5 tips for easy SME bookkeeping:
1: Choose Your Accounting Path, Accrual or Cash basis:
There are two methods in accounting and recording : cash and accrual. The primary difference lies in the recognition of economic events by a company.
Accrual accounting method it matters when money is earned (I.e You sold something for profit, regardless of cash is received or not) and you record transactions regardless of the fact that your customer hasn’t paid yet. The business must use this method in the case when it reached a local threshold according to law.
In cash method, business record transactions as they occur when cash changes hands. (You wont record profit until you receive cash against it) It is the best and the simplest method for starting small business with.
2: Type of Records to Keep in Safe:
There are two type of documents, Legal documents and Supporting Financial Documents.
- Legal documents. Business licenses and permits, sales tax licenses and any other documents that have legal significance for company’s activity should be stored separately and be kept accurate and current. You need to know exactly where one or another document is, both online and offline.
- Supporting financial documents. The source documents are of a great value for a business because all accounting operations are based on them. Contracts with counterparts, invoices, receipts, payrolls, cash register tapes and a number of other documents related are considered to be supporting documents.
3: Always have separate Checking (Bank) Account for your business:
Mostly in sole ownership business its not required by law to have separate business bank account but gurus always highly recommend this to have easy filter of personal and business transactions. Absence of clear boundaries between personal and business bank accounts as well as credit cards always have negative effect on business operations.
4: Choosing Small Business Accounting Package:
In this IT-Bombed age there are plenty of Accounting Packages that help business owners to “Do it Yourself” Accounting. Many of them connect to your bank and even take you to the accounts and tax return submission.
The thing is that every small business owner has such business processes and accounting arrangements which represent a set of his own informal rules, and therefore can not be generalized. There is no one-size-fits-all best accounting software for small business. Make a list of accounting features (inventory management, merchant account support, business tax reporting and others) you need to narrow down accounting software choices. Use the online accounting software which is built specifically for small businesses. To understand how the things work you can start with free accounting software like Wave, TurboCash or cloud-based ZipBooks.
5: Always Have Professional Accountant Support:
After doing all the above steps you are considered to on “right track”. But never underestimate professional accountant. Studies have proven than mostly (by hiring competent accountant) business save more than their spending. In less than $100 a month you can have Professional Accountant at your back to look after your account, and saving alot of cost of keeping records and in other form like taxes.A professional accountant will help to handle growth transitions, set up a company structure that best suits your business model, gives recommendations and more.