Bookkeeping is important in every business, but business owners often lose interest in keeping the books. This task involves paperwork, which can be an additional burden to business owners who are already juggling multiple tasks. However, inspite of the difficult tasks involved in bookkeeping, it should not be ignored if you want to remain in business. If you do not know how to determine taxable income or monitor financial health, your business will take a turn for the worse.
A well organised records will make it easier for you to prepare your financial statements, which contribute to the success of your business. Since financial statements are vital to monitoring the performance of your business, your cash should remain intact. It is only then that you will be able to grow your business.
Financial statements provide you a summary of the results of your business operations. It is where most decisions from banks, investors and creditors depend on. Even if you are a small business owner, you should not underestimate the power of good bookkeeping and it all starts with the basics.
Setting up a basic bookkeeping system
If you have chart of accounts, you will be able to have an idea about the basic financial reporting foundation necessary for your business. However, when designing your chart of accounts, you need to take a few things into consideration as the future growth of your business will depend on it. As much as possible, you should have a dynamic structure to be able to adapt to the changes taking place in your business. The chart of accounts will depend on the type of business you operate, extent of your inventory, extent of capital assets and many others.
Cash vs. Accrual
The methods you choose will depend on your business needs. The decision on whether to use the accrual or cash method will be solely up to you. For small businesses, cash basis accounting is the most preferred method by small business owners because of its simplicity. This method records sales when payment is received . When you write the checks, you also record expenses. For bankers and investors who want to see results, the accrual basis of accounting is the way to go. This method recognises revenue when earned and not when collected. It also recognises expenses when it is incurred and not when paid.
Manual vs electronic
If you want to reduce the time you spent on paperwork, electronic systems are a great option. Since manual systems demand accuracy, it also requires more time especially if you are not confident with using a computer. Electronic bookkeeping systems can involve using web-based system, bookkeeping software and spreadsheets.