Basic bookkeeping for the small business

Bookkeeping is the first part of the accounting process. It concerns the way in which financial transactions are recorded and organised into your company accounts.

For example, every time a supplier is paid or a customer makes payment this information needs to be tracked and recorded. Doing so accurately, will help you keep track of your business incomings and outgoings and, in turn, ‘balance the books’. However, unlike accounting, bookkeeping doesn’t go into reporting on and interpreting financial data. 

Some common examples of bookkepping include:
Recording your financial transactions
Posting debits and credits to a journal
Preparing your financial statements
Processing payroll

Bookkeeping involves the organised processing and storing of your business records and financial statements. It is important to ensure that you are up-to-date with the financial affairs of your business. Such as: accounts receivables, accounts payables, corporation tax, liabilities and equity and other financial activities. There are a number of business bookkeeper guides available online for small business.

Having adequate bookkeeping systems in place will help you:

• know when to pay suppliers and when payment is due
• allow you to keep track of customers that owe you money
• process sales invoice documentation
• review the cash flow of the business – such as paying bills
• prepare profit and loss accounts and balance sheets
• prepare business finance reports
• forecast and set projections for the future.

As a business owner you are required to keep and store accounting records for a minimum of six years. 

Many small businesses or sole traders use accountants or accounting systems to accurately record their bookkeeping.

This will involve you passing over all of your books and records to the bookkeeper who will then process the documentation for you. Most bookkeepers are happy to come to your offices and do the bookkeeping on your premises or provide online accounting solutions. This bookkeeping software is a computer program used to act as accountant and bookkeeper for your business – detailing your organisations financial information.

Other business owners will do their bookkeeping themselves or ask a family member to do it. This will involve:

• Preparing quotes and sales invoices
• Processing sales and purchase invoices
• Preparing VAT returns
• Processing other expenses
• Bank reconciliations (making sure that all items have been recorded)
• Petty cash reconciliations
• Chasing debt
• Paying suppliers (with appropriate documentation e.g remittance advice)
• Recording customer payments
• Dealing with wages.

Some business owners are confident to carry out all of the above tasks themselves – which will obviously same them a lot of money – but does take up a lot of time. Others may carry out some of the tasks themselves but then use a professional for some services such as Payroll or VAT.

If you decide to take on the work yourself, it is vital that you stay on top of your bookkeeping. To find an accountant or bookkeeper to help with your bookkeeping click here.

Software can definitely help, particularly with simple bookkeeping for a very small business. There are a wide range of software providers available, offering various services and tools from the basic to the more complex. 

Some of the features accounting software can offer are:

• Basic accounting tasks – recording income and expenditure, financial reports and budgets 
• Automation – preparing invoices and purchase orders, setting up automatic billing, processing single and recurring payments, bank reconciliation
• Tax preparation – Online completing and filing of tax returns 
• Inventory – Control stock levels, track sales and purchases
• Payroll processing – timesheets, salary calculations, payslips, submissions to HMRC.

Here are two examples of accounting software to give you an idea of what’s available on the market:

• Sage
• Xero

As often as possible. The longer you leave it, the bigger an administration burden it is.

It is a good idea to get into the habit of writing up your books on a weekly basis.

If you are in the United Kingdom using a business account professional to do your bookkeeping for you, then the frequency will depend on the size of your business and the volume of transactions. If you are VAT registered and doing VAT returns, then the frequency of your VAT return periods will usually govern the frequency of bookkeeping i.e. you will prepare your VAT returns whilst processing all of the relevant books and records.