Wouldn’t it be great if your business could simply generate revenue, collect it and be done with it? You’d be free to spend it as you wish and not have to worry about how much profit you’ve earned, how many expenses you’ve incurred and so on. Of course, it would also be great if money grew on trees, but that’s now how the real world works!
To keep your business afloat and keep the tax man off your back, you’ll have to record your financial transactions. This is what is commonly referred to as “Bookkeeping.”
If you are like most of the general public, you probably have no idea of how to get started on bookkeeping. Should you just add up your revenues and expenses or is it more complicated than that? Let’s take a look at a few of the key elements of bookkeeping.
It is important to document all of your business transactions. This includes both items that you buy and sell.
Your record keeping system should reflect the scope of your business. If you own a small antique shop, a simple system will suffice. For example, you could use a shoebox to hold your receipts or a basic cash register.
For complex businesses, a more advanced record keeping system should be used. A cash register that is connected to a computer system may be necessary if you have plenty of customers and a wide variety of products.
Establish and Post to Ledgers
A ledger is a summary of revenues, expenses and anything else you wish to keep track of. You may get started with a blank sheet with lines or a computer file with empty rows and columns, such as Microsoft Excel.
At regular intervals, post the amounts of your purchases and sales into the ledger. This information can be obtained from your receipts. It can be done every day, every other day or even weekly. You can do so monthly, as well, but it is best not to go longer than 1 month without posting to a ledger.
If you find that you are having trouble doing this on your own, you can also use accounting software to assist with your bookkeeping needs. The more complex your business is, the greater the benefit will be to having a professional do your bookkeeping, so consider a professional bookkeeper if you run a rapidly growing business.
Create Financial Reports
Alright, you’ve jotted down a bunch of numbers of a sheet of paper. What did you do this for?
If properly done, bookkeeping will allow you to compare your income and expenses. Doing so will convey a clear message of whether or not you are making a profit, how strong your cash-flow situation is and other critical information to your business.
So, it is important to generate reports based on your ledger. Key report to generate are:
- Cash-flow analysis
- Profit and loss forecast
- Balance sheet
All of these can be made by using accounting software or by hiring a bookkeeper.
If you anticipate problems with bookkeeping, consider hiring a professional to do the job. Any significant errors could lead to serious cash-flow problems, errors in business decisions and even the tax man knocking at your door. A strong professional will work with your best interest in mind so that you can avoid problems down the line.