According to a survey conducted by Wasp Barcode Technologies, 30% of small businesses fail because they run out of cash. Proper bookkeeping helps businesses manage cash flow and prevent running out of cash.
What is bookkeeping for small businesses?
The process in which we record and maintain all the business financial transactions is known as bookkeeping. It includes a record of sales, purchases, payments, Reconciling accounts, etc. Small businesses use bookkeeping to make informed future decisions with a record of their current financial position.
Small businesses don't have enough cash to hire a professional or personal accountant for their business. So, they do bookkeeping by themselves or work with an accounting firm or bookkeeper.
why is bookkeeping important for a small business
1. Financial Record: Bookkeeping provide clear financial records of business income, expenses, cash flow, transaction, etc. Which helps businesses to make better future decisions.
2. Tax compliance: Accurate bookkeeping help small business comply with tax rules and regulations. Which helps small businesses to prevent penalties or an audit.
3. Financial Management: Bookkeeping provides businesses with income and expenses through which they can track their cash flow and financial performance. This performance can be used to identify areas of improvement through which small businesses can save money.
4. Fund Raise: Bookkeeping also play a vital role to raise funds for your business. When you have accurate financial records you can use this to raise funds for your business through investors, lenders, or banks.
For instance: when you reach out to an investor and show your financial records and tell him/her about how you are going to increase your business profit. Then, there are more chances to get funding for your business.
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how to get investors for your small business in 2023
5. Term goals: when you have an accurate bookkeeping record. Then, You can create better short-term and long-term goals without suffering from any kind of financial losses.
6. Cut unnecessary costs: small businesses have less amount of cash to fund their business. So, they have to manage their cash and with the help of bookkeeping, they can do it. Because bookkeeping shows them the area through which they get income and expenses and by analyzing their expenses they can cut unnecessary costs.
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8 ways on How small businesses can reduce costs and increase revenue or profit in 2023
7. Business valuation: Bookkeeping provide a picture of a business's financial position, which is necessary to value a business. This business valuation is required when you are seeking to sell or merge your business.
bookkeeping examples
Bookkeeping consists of various tasks which are essential for managing business finance. Some of them are:
1. Sales Record: Bookkeeping helps to record business sales. Such as cash sales and credit sales. This record is used to create sales reports.
2. Expense record: In consist of the record of all business expenses. Such as rent, salaries, utilities, and supplies. This record is used to create expenses report.
3. Invoice: It consists of creating and sending invoices to customers for the product or service they have purchased.
4. Account payable: it consists of a record of accounts payable. Such as amounts owed to vendors and suppliers.
5. Account receivable: it consists of a record of accounts receivable. Such as unpaid invoices.
6. Reconciling bank accounts: Bookkeeping involves reconciling bank statements with the business's financial records to ensure that there are not any faults in transactions.
types of bookkeeping
There are two main types of bookkeeping single-entry bookkeeping and double-entry bookkeeping
1. single-entry bookkeeping
In this bookkeeping, all the financial transactions are recorded at one time, either as expenses or income. This bookkeeping is generally used by small businesses. Because they have few transactions to record and the record of transactions are recorded in a manual ledger or accounting software.
2. Double-entry bookkeeping
In Double-entry bookkeeping, all the transactions are recorded twice, once as a credit and once as a debit. This bookkeeping is done by most businesses and here also you can record transactions in the manual ledger or accounting software.
Do small businesses do their own bookkeeping?
Yes, small businesses and early stages businesses that have few transaction records do bookkeeping by themselves because they don't have a sufficient amount of cash to invest in professional accountants or bookkeepers. So, they do bookkeeping by themselves in a manual ledger or accounting software.
Can you use Excel for bookkeeping?
Yes, you can use Excel for bookkeeping. Most small businesses use Excel for bookkeeping. Because it contains a spreadsheet program through which you can create a customized template for bookkeeping such as income and expense trackers, balance sheets, and profit and loss statements.
However, it is important to notice that Excel is not a bookkeeping software and it doesn't contain all the features that are available in bookkeeping software. So for bookkeeping in Excel, you should have basic information on accounting principles.
how to save money on bookkeeping for small business
There are several ways to save money on bookkeeping for small businesses some of them are:
1. Do it Yourself
If you have some basic accounting information then you can do bookkeeping by yourself in Excel or free bookkeeping tools. This will save you money on a professional accountant or bookkeeper.
2. Expense track
Make sure to track up-to-date and accurate expenses of your business. Such as receipts and invoices. This will save you from overpaying taxes and also make sure that claim all the deductions that you are eligible for.
3. Cloud-based software
You can use Cloud-based software because they are affordable in price and their software update is also less in cost. Additionally, due to cloud-based software, you can access bookkeeping anywhere and at any time.
