You must understand that bookkeeping is fundamentally important for all businesses, regardless of size. Startups should build a foundation for bookkeeping by recording their financial gains, losses, and cash flows as often as possible.
Software for accounts receivable is a popular and useful method for new businesses to track their invoices and payments. Most software works well enough, but having fundamentals to back your software usage is critical.
You’ll need to learn the basics of bookkeeping, its purpose, and why it’s important. Additionally, you’ll need to choose your bookkeeping method, software, and budget. Here’s everything you’ll need to start and improve your bookkeeping skills.
What Is Bookkeeping?
Accounting and bookkeeping complement each other, but they serve very different purposes. Bookkeeping is often mistaken for accounting. Bookkeeping focuses on keeping proper financial records by organizing and maintaining all financial data.
Accounting’s main purpose is to interpret financial data. If you don’t have accurate and easy-to-understand financial records, you’ll struggle to make well-informed business decisions based on financial data.
Why Is Bookkeeping Important?
The value of bookkeeping, especially for startups, comes from the information it provides for you. If you don’t have accurate and clean records, you’ll find yourself leaking money from the start of your business operation.
When your business grows, and you still haven’t kept proper track of your financials, you’ll find yourself in a much worse spot than you could ever imagine. Start practicing proper bookkeeping early and use accounting software, such as software for accounts receivable, to help you do that.
Furthermore, utilizing invoice software can greatly enhance your bookkeeping process by allowing you to create and customize invoices tailored to your business needs, improving accuracy and efficiency in your financial transactions.
Bookkeeping Methods
Now that you understand the importance of bookkeeping, it’s critical to choose your business bookkeeping method. You can choose several methods, and it’s important to ensure they match your business’s needs.
You don’t want to overcomplicate your bookkeeping method and want it to be easy to understand for most, if not all, of your organization’s members. Consider which one of these bookkeeping methods will suit your business the best.
- Single-entry Bookkeeping: The single-entry bookkeeping method is perfect for small businesses that don’t provide complex payment methods or expenses. You will document transactions and expenses as they’re made and incurred.
- Double-entry Bookkeeping: Double-entry bookkeeping is complex as it involves managing debits and credits. The idea is to keep your accounts balanced as you credit one account, debit another, and vice versa.
- Cash-based Bookkeeping: This method records your transactions as you receive cash. Cash-based bookkeeping is extremely common for startups and very straightforward. If you’re unsure which method to choose, consider this one for recording transactions.
- Accrual-based Bookkeeping: This method records your transactions when you earn revenue and take on expenses. Cash doesn’t have to be present when recording, but the transaction will still be on record.
How To Record Your Entries
Depending on the accounting method you choose, you may prefer to record your entries in different ways. For example, you may prefer a single journal or an electronic cash register for the single-entry bookkeeping method.
For the more complex methods like double-entry, you can use a ledger, which will provide you with a list of accounts such as your assets, liabilities, and expenses. Regardless, once you choose your method of recording, you’ll be set to start bookkeeping.
How Can You Improve Your Bookkeeping?
The first thing you’ll want to do is separate your personal accounts and your business accounts. New-found businesses make the mistake of keeping their finances mixed with their startup’s financial records. Create a separate business account to better track your business’s cash flow.
Additionally, try to keep most of your financial records digital. Having digital records makes it easier to organize, share, and back up. Since plenty of accounting software helps with bookkeeping, there’s also more incentive to keep your records digital.
Important Things To Keep Track of As a Startup
Businesses must pay special attention to a few aspects when they start their operation. Finances can quickly get out of hand, and business owners can lose track of things quickly, so you must consider the following.
- Invoices and receipts
- Credit line and bank statements
- Payment proofs
- Tax returns
- Expense list
How Much Should Small Businesses Spend on Bookkeeping?
The amount of money you spend on bookkeeping depends on your business and situation, but most small businesses typically spend around $1,000 to $5,000. You’ll budget your bookkeeping, legal, and accounting fees depending on your needs.
Frequently Asked Questions
Here are answers to some questions that people have about bookkeeping
What Do You Need From Accounting Software?
Any accounting software that covers your basic bookkeeping and accounting needs will do just fine, but there are some features you may want to consider. For example, automation and reporting features are nice to have within your accounting software.
Additionally, ensure the accounting software or practice management software for accountants is ideal for your business and bookkeeping methods. You don’t want to use software meant for enterprises when you’re just a small startup that only needs basic single-entry bookkeeping.
Is Accounting Software Worth It?
For startups and new businesses, accounting software is worth it. Accounting software provides excellent bookkeeping features like day-to-day transactions, expenses, and important financial analytics.
Even if you don’t use all the features in the software, the bookkeeping features will prove sufficient for a small business. Accounting software is also affordable and worth your time, as paying for an accountant early on wastes their expertise.
Do startups need accountants?
You technically don’t need an accountant when you’re starting your business. Although, it’s important to have financial insight into your startup costs and other potential expenses. Accountants can help you figure out what you need to start your business on the right foot.
Bottomline
Bookkeeping is critical to your business’s health. Ensure you’re consistently monitoring your cash flows, expenses, and bank statements, and ensure your financial records are accurate. Once you understand bookkeeping, the rest is relatively simple.
Owning software for accounts receivable is also important to keep track of what you are owed. Late payments can sink a company if not dealt with early on.
If you’re struggling, don’t hesitate to hire an accountant or seek legal advice to help put you on the right track. There is general information about bookkeeping and accounting, but your business and situation might be unique.