Do I Need To Do Bookkeeping For My Business?Aug 03, 2021
This is the fourth post in our "Starting a Business Series". This series stemmed from a conversation I had a bit ago with a brand new business owner. They were completely lost and no idea where to start.
That got me thinking that we should do a series on this specific topic so I ran it past everyone in our Free Facebook Group and with overwhelming support, everyone wanted it. So here we are!
When talking to a new business owner, I typically find that bookkeeping is the last thing on their mind. However, it should not be that way. Bookkeeping is the back bone to every single business.
Do not get me wrong, when just starting out getting some kind of money in the door is important. If there is no money coming in then there is no business. With that being said bookkeeping at the beginning can actually be a fairly easy process and it will reward you leaps and bounds down the road.
What Is Bookkeeping?
Bookkeeping is the process of keeping track of (or recording) every financial transaction within your business. This is then used to create financial statements, with the two most common being Income Statement (or Profit and Loss) and a Balance Sheet. Both of these are extremely important in your business which is why you MUST do bookkeeping in your business and it's important to do it from the beginning.
Here are just a few reasons on why you NEED bookkeeping:
- Want to get funding from a bank? Need financial statements.
- Need to file your business tax return? Need financial statements.
- Want to gain clarity on how your business is performing? Need financial statements.
- Want to know what your business is spending money on or your top clients? Need financial statements.
What Type of Transactions Do I Need To Be Tracking or Recording via Bookkeeping?
- Bank and Credit Card Transactions: Every transaction (spend money or receive money) that goes through your bank account or credit card needs to be assigned to an account or category.
- Invoices: Although not required to complete bookkeeping, many businesses send invoices to their clients to ensure they get paid.
- Bills: Although not required to complete bookkeeping, many businesses enter bills to keep track of who they owe and when it is due.
- Non-Cash or Credit Card: This could be something like an asset purchase or a loan your business took out. Ex: You purchase a new Ford F-150 and take a loan out. You would record a new asset (vehicle) and corresponding loan related to the purchase.
What Is An Income Statement (or Profit and Loss)?
Simply put, this is the tracking of income and expenses. It shows you how profitable (or not) your business is over a period of time.
Income - Expenses = Profit (or Loss) aka Net Income
- Income aka Revenue / Sales
- Money received from customers or clients
- Examples: Costs of Goods Sold, Bank Service Charges, Contact Labor, Consulting, Travel, Wages & Salaries, etc.
You can simply record these in an Excel file in the beginning or you can go with a cloud based accounting software. We personally love a cloud based accounting software called Xero.
Here is an example of an Income Statement:
What Is A Balance Sheet?
Simply put this is the tracking of your assets, liabilities, and equity. It shows the financial condition of your business on a specific date in time.
Assets = Liabilities + Owner's Equity
- Assets (What You Own)
- Examples: Cash, Checking or Savings Account, Furniture, Equipment, Inventory
- Liabilities (What You Owe)
- Examples: Credit Card or Loan Payable
- Equity (What's Left Over)
- Examples: Owners Contribution, Owners Draw, Current Year Income (or Loss)
The balance sheet might not have as much activity on it in the beginning but it is vitally important to keep this up to date along with the income statement as it completes your set of major financial statements.
Here is an example of a Balance Sheet:
Do I Need To Do Bookkeeping For My Business?
Lets take a look back at our initial question. The answers is ABSOLUTELY, it is vital for you to succeed, ensure accurate tax filings, and remove stress often associated with this side of your small business.
To sum it up:
- Do bookkeeping, right from the start.
- Update your bookkeeping at least monthly.
- Utilize the information you get from bookkeeping to better help you and your business.
Now, this article was meant just to dip our toes into the bookkeeping water. We have a few next steps to take this information and dig even deeper.
- Last year we did an entire 9 part series on bookkeeping. You can find that here. This is taking the information here and digging a bit deeper. Topics include:
- What Is Bookkeeping and Why Do I Need Bookkeeping For My Business?
- What Are Bookkeeping Debits, Credits, and Chart of Accounts?
- What Is Cash and Accrual Accounting?
- What Is An Income Statement vs Balance Sheet?
- How Do I Read An Income Statement and Why Is It Important?
- How Do I Read A Balance Sheet and Why Is It Important?
- What is the Statement of Cash Flows? Any Other Important Financial Statements?
- Top 7 Most Common Bookkeeping Mistakes Made
- BONUS: Panel Discussion with JETRO Bookkeeping Team
- We created a Free Bookkeeping Training course that you can join here!
- Our Tax Minimization Program includes our Stress Free Bookkeeping Training Program that you can join here!
Hope that this was helpful and gives you a better understanding of why bookkeeping is so important to your new small business.
Finally, I highly recommend you sign-up for our Tax Minimization Program (w/ Stress-Free Bookkeeping Training) as not only will you get a bunch of in depth training, templates, group coaching but you also have unlimited access to our team for general tax and accounting questions. How sweet would it be to have an accounting professional by your side for those questions that pop up in this crazy journey of being a business owner?
The Time Is NOW To Start Paying Less In Taxes. Join Our Tax Minimization Program (w/ Stress Free Bookkeeping Training)!
What you'll get:
- Library of Tax Strategies, Implementation Guides, Videos, Downloads, etc.
- Stress Free Bookkeeping Training Program
- Ask A Pro - Unlimited email access to our team, it is like having an accountant in your back pocket!
- Monthly Group Trainings
- Private Facebook Group
- Partner Directory
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