In order to have a clear understanding of their profits, business owners need a detailed record of income and expenses. Bookkeeping is the process of collecting and recording financial data, such as sales or costs, for your business. The more complete your financial data is, the more information you’ll have on how your business makes and spends money. The following tips will help you to flesh out your bookkeeping system, so that you can work to make your business more efficient from every angle.
Determining Your Needs
There are two different methods of accounting for businesses (cash and accrual), both of which can be carried out in a multitude of ways. The only difference between these methods is when the transactions are logged to your accounts.
When using the cash method, which is more commonly used by small businesses, income and expenses are not added to the ledger until cash is actually paid or received. The accrual method, on the other hand, involves counting transactions when services occur, whether or not money has actually been paid or received. The accrual method gives you more accurate details on the long-term profitability of your business, while the cash method leaves you with a better idea of how much cash your business has at hand.
Keep Track of Everything
In the past, entrepreneurs diligently tracked their finances in a handwritten ledger. While many still choose this method, the majority of today’s business owners use bookkeeping software, such as QuickBooks. Not only do these programs make it easy to enter data, they also allow you to generate financial reports with the push of a button. Whether you choose to use software or not, make sure that you record every single transaction that is made. Any information left out of your ledger can lead to inconsistencies in the future.
Update Your System Regularly
Make a habit out of entering the amounts from your purchase and sale receipts on a consistent basis. This process is called posting. Depending on how often your business conducts transactions, you don’t necessarily need to post to your ledger every day. While a retail store can rack up hundreds of sales in a single day, a slower-paced appliance repair company may make just a few transactions every week.
However, posting on a regular schedule will make the whole process seem more routine and easier to manage. Remember that posting more often will give you a more detailed view of your business’ finances, regardless of the size of your business.
Keeping these few things in mind as you establish a system of bookkeeping for your business, helps you stay ahead of your business’ accounts. Using the data you’ve collected with your bookkeeping system, you can generate detailed financial reports.
If you choose to utilize bookkeeping software as a part of your system, these reports can even be scheduled to generate automatically. Financial reports help you to see the big picture and gain a better understanding of your company’s finances. With that, you can turn your focus to areas where you can best help your company grow.