How Important is Bookkeeping for Small Businesses?
Businesses, even sole proprietors need to maintain an efficient bookkeeping system to keep on top of their finances and stay in business.
The only way to know how much income and expenses to include in a tax return is to keep a record, even if it's a simple excel bookkeeping spreadsheet.
What Types of Bookkeeping Systems Are There?
There are two very common methods:-
Single Entry Bookkeeping which is your basic spreadsheet as mentioned above, or cash book method.
Double Entry Bookkeeping which is a method that utilizes ledgers and entering the value of a business transaction twice to keep a balance.
Bookkeeping and accounting software is available for both methods.
These range from basic cash book programs, like our Excel Cashbook (a simple spreadsheet to help you track income and expenses) to double-entry systems that include sales and purchase invoicing, inventory control and payroll.
Here is a list of the best bookkeeping software available with a general idea of region, but many of these have been adapted for use in each other's regions and others world-wide:-
- OpenOffice (totally free and excellent), Microsoft Excel, Quattro Pro – all very good for spread-sheeting with automated calculation capabilities.
- Quickbooks, Quicken, Peachtree (USA),
- Sage (UK),
- MYOB and Xero online (NZ, Australia, USA and UK),
- Pastel (South Africa).
Here is a comprehensive comparison of QuickBooks, Sage and Xero.
Should the Business Owner Do the Bookkeeping?
Answer yes to the following questions and you should have no problem doing the bookkeeping yourself.
- Do you have a few hours per week/month to focus on this task?
- Have you got patience to sort through paperwork and keep it in good order?
- Have you got time and patience to learn a bookkeeping system?
- Do you want to keep costs down by doing your own bookkeeping?
Who Can You Turn To for Advice on
Bookkeeping for Small Businesses?
As a self-employed, working from home business owner there is no need to feel alone.
There is plenty of help available online from websites such as this one, and no doubt there will be some small business support groups in your community.
One good idea is to look up a bookkeeping business in your area that offers consultation services; you could get them to spend a few hours with you helping you set things up initially, and then as time goes by ask them for help when you need it.
When your business has grown and you reach the point of needing to pay someone else to do the bookkeeping, this same service provider could well be the one to help you.
Many software developers have authorized partners or representatives and there may be one in your region who can consult with you. Otherwise, they will have a support line you can phone for step by step instructions.
Here are 12 small business bookkeeping tips.
If you have a LinkedIn profile I recommend joining the Bookkeepers Club where all bookkeepers from any part of the world are welcome to ask questions and get help (a business owner doing their own books will be a bookkeeper). Experienced professional bookkeepers and accountants provide their answers and are always very helpful.
What Happens at Tax Time?
Your government tax department will have good advice and resources for self employed people. Have a look at their website. They provide lots of information relating to business start ups and tax and what sort of tax deductions you can make especially if you are working from home.
If you have kept a good bookkeeping record throughout the year then completing and filing your tax return should be an easy process.
If you don't feel comfortable with filing your own tax return then pass on your neat and complete bookkeeping records to a tax accountant and let them do it for for you. Tax accountants will ensure you are getting all the right tax benefits.
Day to day bookkeeping
For a better understanding of how to run your day-to-day bookkeeping, take a look at my following guide which covers most procedures:-