As a business owner you have many responsibilities. Balancing work, marketing, admin, your personal life. This list goes on. One thing you may think is not important to your business is bookkeeping. It’s important to keep your books in order and updated regularly not just at the end of the year. It will also save you money in the long term.
To ensure your bookkeeping is done well, here are some questions you should ask yourself.
1. Should I Open a separate business bank account?
If you’ve started a business and haven’t already opened a separate bank account, this is for you.
Unless your business is a separate legal entity or operates under a “doing business as” name, you don’t have to open a separate business bank account. However, separating your personal and business activity can save you a lot of stress in the long run.
Mixing personal and business funds can cause you to file taxes inaccurately and overspend. You may accidentally use business funds to make personal purchases if you combine funds.
Opening a business bank account is a straightforward process: choose a bank, gather necessary documents, and open the account.
Most business bank accounts are free to open and have features which calculate taxes for you as well categorising what your transactions relate to.
2. How should I record transactions?
One of the first decisions you need to make when setting up your books is deciding how you will record transactions.
You can record transactions using an excel spreadsheet, hire a bookkeeper, or use accounting software. See our previous blog reviewing two of the most popular accounting software; Xero Vs Quickbooks Online.
Recording transactions using an excel spreadsheet is the most inexpensive and time-consuming method. You open up your business to making common accounting errors, such as miscalculating or failing to balance accounts.
Hiring an accountant is the least time-consuming method. When you hire an bookkeeper, you don’t need to manage your books.
Lastly, you can opt for an accounting software provider to manage your books. Using software lets you track incoming and outgoing money and organize your books. With software, you can automate your record keeping, then hand over your books to an accountant for the more complicated tax requirements
3. Do I need to create and send invoices?
You must create invoices if you provide goods or services to a customer without demanding immediate payment.
To create an invoice, You must include your name and business address, the date of the transaction; customers name and address, a description of the product or service provided, the amount due, payment terms, and an invoice number for reference.
4. What accounting terms should I know?
Are you familiar with accounting jargon? If you don’t remember all the terms don’t worry. We’ve got you sorted with our 5 most important key terms
Cost of goods sold (COGS): An expense that represents how much it costs you to produce your offerings. COGS is a crucial factor when determining your business’s profit.
Assets: Your business’s physical (tangible) or non-physical (intangible) property that adds value to your business. You can have current assets which can convert into cash within one year such as your inventory and, you can have fixed assets which are harder to convert quickly into cash.
Liabilities: Money that your business owes. You can have both short-term liabilities that are due within one year and long-term liabilities that are not due within one year.
Equity: Your business value after subtracting liabilities from assets.
Revenue: The money your business generates from sales
If you want to ensure your business’ success, maintain your books regularly and accurately. Don’t leave it till its too late or else you will suffer.
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