Accounting & Finance

The 5 Necessary Bookkeeping Basics

Written by Clare Hastings

Many small business owners find bookkeeping overwhelming. It’s difficult to narrow down available digital options into a shortlist that best suits your needs.

Keep reading for our top 5 necessary bookkeeping tips.

  1. Your Bookkeeping Structure

  • Keep your personal accounts separate

Minimise stress by keeping your personal and business accounts separate. You could set up a bank account specifically for your business. Be sure to pay yourself a salary out of that account as an allotted business expense.

It might be tempting to keep all of your money in the one account. This will cause a bookkeeping nightmare, particularly as your business grows. Put your money into separate categories from the get-go.

  • Separate business bank accounts

Using multiple business bank accounts allows you to visualise the money you have available for different projects. Consider separating your business accounts into tax, wages and marketing sections. You can refine your account types as your business develops.

  • Credit card and bank spend limits

Put daily limits on any credit cards that you take out on your business accounts for your employees to use. Keep these limits low to avoid overspending.

  • Choose the right accounting platform

The three big players in bookkeeping software are MYOB, XERO and QUICKBOOKS. Bookkeeping Freedom has a page that highlights the different functions of each of the main bookkeeping software platforms to help you choose the best one for your business.

  • Employ a bookkeeper 

Choosing a great bookkeeper is so important. A bookkeeper will complete their tasks accurately and free up your time for activities to which you are better suited. You will feel in control of your business if your books are in order.

Spend your spare time enjoying your life, friends and family not burning the midnight oil catching up on paperwork and stressful taxation obligational deadlines.

Employing a bookkeeper on a regular basis may well work out cheaper than having an accountant sift through a year’s work of paper at tax time.

 

  1. Invoicing, Reconciling and Receivables

  • Invoicing

You can use digital invoicing software or a physical docket book.  A pre-made template will ensure that you cover all the required bookkeeping bases.  You can even find templates online.

Build your invoicing and receivables system into your website to help automate the process. Stripe payments are a common solution embedded into WordPress websites to facilitate payments out of a cart.

Ultimately, your bookkeeping software is an easy and professional way to do your invoicing. A bookkeeper can assist with the end of your invoicing process.

  • Reconciling

Whether you are invoicing directly out of your bookkeeping software or you are also utilising a stripe platform, reconciling should be easy once you get the hang of it and understand how to categorise different invoices. Your bookkeeper can help you with this. Connect your bank account to your invoicing software. Any money that comes into your business accounts raises a query in your bookkeeping platform. You or your bookkeeper can then assign it to a customer/category.

Ensure that you understand how to categorise and reconcile special items, as they need to be done externally. Also, something like a payment from the ATO may not include any GST. In cases like that you should refer to your bookkeeper for advice to ensure things are not mismanaged.

In the end it all comes back to utilising a bookkeeper to help keep things in order and avoid that big messy fix up cost at a later date. It’s much easier to manage than to do damage control.

  • Receivables

Issuing an invoice does not mean that it will be paid promptly, if at all. Stay aware of your outstanding invoices and have a step-by-step system of bookkeeping follow up including steps of demands and even litigation.

Ensure that your conditions of your payment terms are clearly outlined in an agreement contract. This will help you maintain good relationships whilst making demands on receivables.  When carried out properly, an escalation of bookkeeping steps will seem and more like a basic business bookkeeping process.

 

  1. Paying Creditors on Time

  • Your Terms

Everyone likes to be paid on time but there are other reasons that you should pay your creditors in a timely manner. You want to pay people on time because you have hopefully come to terms with your creditors on YOUR terms, not theirs. You should choose a creditor that complies with your terms whenever possible.  After all, YOU are paying them, they probably need you more than you need them.

Given that you’ve secured your preferred terms, you should honour this by paying your creditor on time. This will also give you consistent data on how your business is tracking. The alternative is sifting through complex data and re-categorising things to try to understand which month was successful and which month was less successful and why.

Steady and reliable control of your bookkeeping in relation to payments is just as important as steady control of your revenue streams. It gives an accurate snapshot of bookkeeping information for analysis.

  • Reliability

Being known for being a reliable payer can help you in numerous ways.

a.) Your general relationships will be improved, leading to better negotiations in general.

b.) Paying on time reduces anxiety because your financial expectations are clear at all times. You won’t get any nasty surprises.

c.) You may need credit at some point. You may want to buy materials from a supplier for example. You may either want a 30 day account where you pay for everything at once at the end of the month, or you may negotiate a returns policy in that time frame instead. It’s going to be much easier to formulate a bookkeeping agreement that works best for you if the supplier can get a clear indication of what type of account holder/payer you are. They will request references attesting to your behaviour in similar scenarios that you have been involved in.

d.) Prompt payments reflect well on the credit score application of any business loan that you may apply for.

 

  1. Payroll

  • Wages

Get the professional support of a good bookkeeper if you are new in business or new at paying wages. They can help you set up the business. Wages are easy to get wrong if you are inexperienced but are easy to manage if you’ve set your business up properly.

  • Superannuation

You can set up super as a part of your bookkeeping software. Super can be complex to manage manually as you may need to setup these payments through a clearing house and may not be able to make direct deposits into your employees’ accounts.

  • Tax Time

Tax time is easier when everything is set up professionally and an expert bookkeeper has been engaged. The average small business should have a cheap and simple tax process if their books were managed effectively throughout the financial year.

 

  1. Financial statements

  • What do I need and when?

A financial statement is a set of documents that describe your current financial situation. This is usually required if you want to engage in a financial process that  will bring financial risk to another entity. You will need a financial statement when applying for a bank loan.

If you are looking to engage in a large contract whereby the collapse of your business could heavily impact the contracting and its investors, a financial statement may be requested as proof of capacity to deliver. If you’re selling your business, the prospective purchaser will ask to see your books.

A request for your financial statement will include a specific list of required documents to fulfil that request such as the last two years complete tax returns and a balance sheet outlining your business’s current financial.

  • Accountant vs bookkeeper

Both your accountant and your bookkeeper can help you to arrange your financial statement. Consult your accountant about any new scenario. Your bookkeeper can help implement the detail and direction of the accountant’s guidance.

 

“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."

About the author

Clare Hastings

Clare Hastings helps companies position themselves as a trusted authority by turning their expertise into content. Articles, whitepapers, eBooks, case studies and more. She also creates helpful resources like The Marketer’s Guide to Subject Matter Experts, a step-by-step guide to creating insightful, inspiring content using the resources you already have in-house.

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