5 Bookkeeping Tips Every Small Business Owner Should Know
Bookkeeping is fundamental to running a business, yet many entrepreneurs need help to do it right. To ensure your business finances are in order, we'll cover the fundamentals of bookkeeping and explain why it's crucial for the success of your business. We'll also dive into the history of bookkeeping and explore the evolution of this critical practice. Additionally, we'll cover the basics of double-entry bookkeeping, explain the role of a bookkeeper, and share some essential tips for successful bookkeeping. Whether you're a seasoned business owner or just starting out, this blog is a must-read for anyone looking to improve their bookkeeping skills.
How Does Bookkeeping Work?
Bookkeeping is the process of recording, categorising, and tracking financial transactions. Bookkeeping helps businesses keep track of their financial health, stay compliant with their tax obligations and make informed budget decisions.
The fundamentals of bookkeeping are simple. You need to record and categorise all financial transactions, including income, expenses, deductions and assets. This information is typically stored in a ledger or accounting software and can be used to create financial statements, such as balance sheets and income statements. By having everything recorded, you can compare trends over time and understand the ins and outs of your business's financial performance.
Most small business owners need to do bookkeeping themselves, especially in the early stages of their business. However, as your business grows, you may outsource bookkeeping services to a professional bookkeeper or use automated bookkeeping software like Thriday.
When doing bookkeeping, separating your business and personal bank accounts is essential. Separate bank accounts help to maintain accurate records and stay on top of your finances. This can help you identify potential issues early on and make informed decisions about your business. In the next section, we'll take a closer look at the history of bookkeeping and how it has evolved over time.
History of Bookkeeping
Bookkeeping has been around for centuries, and its history can be traced back to ancient civilisations such as Mesopotamia and Egypt. The earliest known form of bookkeeping involved using clay tablets to record transactions.
Over time, bookkeeping evolved to include more advanced systems, such as double-entry bookkeeping, developed in the 15th century by the Italian mathematician Luca Pacioli. This system revolutionised bookkeeping and is still the basis of accounting today.
In the modern era, bookkeeping has become increasingly digital with the rise of accounting software and other technological advancements. Today, small business owners can automate many aspects of bookkeeping, making it easier and more efficient than ever before.
Despite these advancements, the fundamental principles of bookkeeping remain the same: accurate record-keeping and analysis of financial data. In the next section, we'll cover the basics of double-entry bookkeeping and why it's essential for small businesses.
Double-Entry Bookkeeping Basics
One of the most important concepts in bookkeeping is double-entry bookkeeping. This system records each transaction in two accounts: a debit and a credit. Debits represent an increase in assets or a decrease in liabilities or equity, while credits represent the opposite.
Double-entry bookkeeping ensures that the accounting equation always balances by recording transactions in this way. The accounting equation states that assets equal liabilities plus equity, so each transaction must affect both sides. Without proper record-keeping, tracking income and expenses, analysing financial data, or filing accurate tax returns is impossible.
The following section will discuss who needs bookkeeping services and why they're important. We'll also explore how Thriday can help small businesses automate their bookkeeping processes.
What Does a Bookkeeper Do?
A bookkeeper is a professional who specialises in recording, organising, and maintaining financial transactions for a business. Here are some of the tasks a bookkeeper typically performs:
- Recording transactions: A bookkeeper records all financial transactions that occur in a business, including purchases, sales, payments, and receipts.
- Reconciling accounts: A bookkeeper reconciles bank and credit card accounts to ensure that all transactions are recorded accurately.
- Payroll processing: A bookkeeper can handle payroll processing, ensuring employees are paid accurately and on time.
- Generating financial reports: A bookkeeper generates financial reports such as balance sheets, income statements, and cash flow statements.
- Assisting with budgeting: A bookkeeper can help a business create and manage a budget, ensuring that funds are allocated appropriately.
- Advising on financial decisions: A bookkeeper can provide valuable insights and advice on financial decisions, such as investments and loans.
In the next section, we'll explore the types of businesses that need a bookkeeper.
Who Needs Bookkeeping Services?
Bookkeeping services have been an essential part of accounting for decades, regardless of business size or industry. Small businesses have significantly benefited from bookkeeping services as they require tax, interpretation and reconciliation expertise. With limited resources and personnel, small business owners often need help to keep up with the demands of bookkeeping while also managing day-to-day operations.
Different types of businesses require different types of bookkeeping services. Retail businesses typically need to track inventory levels to ensure they have enough products to meet customer demand. Retail businesses may also need to manage their accounts receivable and payable to ensure they have enough cash flow to cover expenses and pay suppliers.
On the other hand, service-based businesses may not have inventory to manage, but they may need to track billable hours to ensure they are invoicing clients accurately. Law firms, for example, need to track the time that lawyers spend on each client's case to ensure that they are billing clients correctly for the services they provide. Service-based businesses may also need to track expenses, such as office rent, office supplies, and marketing expenses.
Another example is manufacturing businesses that may need to track the cost of materials and labour to produce their products accurately. Bookkeeping for manufacturing businesses may involve:
- Tracking inventory levels.
- Managing accounts payable and receivable.
- Calculating the cost of goods sold.
Until recently, only bookkeepers could do bookkeeping. Accounting software was limited in terms of what bookkeeping functions it could perform. While accounting software from the last decade did streamline some processes, it needed to be more powerful to substitute for a professional bookkeeper. As a result, a bookkeeper was still required to provide valuable insights into a company's tax obligations and financial health and help identify areas for improvement.
Next-generation accounting platforms like Thriday have replaced the need for a bookkeeper by using artificial intelligence and machine learning to automate bookkeeping. This groundbreaking innovation launched by Thriday, known as 'Luca', pays tribute to Luca Pacioli, the inventor of double-entry accounting. Luca is an automated bookkeeping algorithm that uses a business's real-time bank account* data to categorise transactions per the correct ATO rules. This new technology has democratised bookkeeping for small businesses, which no longer need to rely on a person outside the company to do the books.
Bookkeeping Tips for Small Business Owners
Bookkeeping can feel overwhelming when you do it yourself, but it can be straightforward if you have the right processes. Here are the top five bookkeeping tips for small business owners:
- Record Keeping: Keeping organised records is essential for good bookkeeping. This includes digitally storing all receipts and invoices in the cloud, using a separate bank account for business transactions, and regularly updating financial statements.
- Use of Accounting Software: Accounting software can save time and ensure accurate financial record keeping. To enjoy automated bookkeeping, Thriday is the best solution for Aussie small businesses.
- Regular Check-ins: Regularly checking financial statements and cash flow can help business owners stay on top of their finances and identify potential issues early on. To ensure you make it a habit, block out time in your diary each week to review the numbers.
- Reconciling Receipts: Reconciling receipts is integral to bookkeeping as it tracks the GST you have paid. Besides being required to claim eligible tax deductions, a receipt can accurately record your GST liabilities. Thriday has an in-built receipt scanner in its software.
- Staying Up-to-Date: Small business owners must keep current on tax obligations, including filing deadlines and tax deductions. This can help avoid penalties and ensure compliance with tax laws.
Implementing these bookkeeping tips can help small business owners maintain accurate financial records and make informed business decisions. However, manual bookkeeping can be time-consuming and prone to errors.
Automated Bookkeeping Statistics
Automated bookkeeping is the use of technology to streamline financial management processes. With automated bookkeeping, businesses can reduce the time and resources required for manual data entry and reconciliation while improving accuracy and efficiency. Here are some statistics from Australia that highlight the benefits of automated bookkeeping for small businesses:
- A recent study by Thriday found that small businesses in Australia spend an average of 6 hours per week on accounting and bookkeeping tasks.
- 50% of small business owners in Australia say that bookkeeping is their least favourite part of running a business.
- Businesses that automate their bookkeeping can save up to 120 hours per year and over $1,000 in bookkeeping expenses.
- According to the same survey, 60% of small businesses in Australia believe that automated bookkeeping saves them time, while 43% believe it saves them money.
Thriday offers a unique solution for small businesses looking to automate their bookkeeping. With Thriday, businesses just need to spend money and earn money into their Thriday business accounts. In doing so, the platform provides real-time tracking and reconciliation of financial transactions. Thriday also has automated receipt scanning and accounts payable features to eliminate time wasted on financial admin.
Benefits of Automated Bookkeeping
As technology advances, bookkeeping has become increasingly automated, making it easier for small business owners to manage their finances. One of the most significant benefits of automated bookkeeping is the reduction in errors compared to manual bookkeeping. A study by the Australian Taxation Office found that small businesses with manual records had an 89% error rate, while those with automated records had a 13% error rate. This shows that automated bookkeeping can help small businesses avoid costly mistakes.
Another advantage of automated bookkeeping is the ability to generate reports quickly and accurately. This lets business owners get a clear picture of their financial situation in real-time, enabling them to make informed decisions about their business.
Thriday is a company that specialises in automated bookkeeping for small businesses. Using Thriday's software, business owners can automate their bookkeeping tasks, such as invoicing, reconciling accounts, and generating reports. This frees up time for business owners to focus on growing their business.
What is bookkeeping?
Bookkeeping is the process of recording, organising, and maintaining financial transactions and records for a business.
Why is bookkeeping important for my business?
Accurate and organised bookkeeping is essential for managing your finances, preparing tax returns, and making informed business decisions. It also helps you track your income and expenses, monitor cash flow, and maintain compliance with regulatory requirements.
What are some everyday bookkeeping tasks?
Common bookkeeping tasks include recording transactions in a general ledger, reconciling bank transactions, creating financial statements, managing accounts payable and receivable, and maintaining payroll records.
Can I do bookkeeping on my own?
While it's possible to do bookkeeping on your own, it can be time-consuming and require significant knowledge and expertise. Many businesses now use automated bookkeeping software like Thriday to avoid the time and effort involved.
What are some software tools available for bookkeeping?
Different software tools are available for bookkeeping, but Thriday is the only solution that provides automated transaction categorisation. Thriday can help you automate bookkeeping tasks, track expenses and income, and generate reports to help you manage your finances more effectively.
Thriday's software is easy to use and accessible from any device with an internet connection. This means that business owners can access their financial information anytime, anywhere. With Thriday, you don't have to worry about the hassle of manual data entry and bookkeeping. You can rest easy knowing that experts are managing your finances.
A new era is upon us. Automated bookkeeping is now essential for small business owners who want to save time, reduce errors, and get a clear picture of their financial situation. Thriday's software is an excellent solution for businesses looking to automate their bookkeeping tasks and streamline their financial management. With Thriday, you can say goodbye to manual data entry and hello to real-time transaction categorisation. To learn how much time you can save with Thriday, take the time saver quiz. So join Thriday for free today and take the first step towards a more efficient and successful business.