The Key to Effective Small Business BookkeepingJuly 11, 2017
New small business owners have a lot of things they need to take care of.
If you’re providing a certain product, you need to make sure that production is going on smoothly and that the product is meeting the standards you’ve set for yourself. Plus, you need to get into marketing and drive up the demand for your product.
Similarly, if you’re providing a service, you need to make sure that you have several good providers of that service on your payroll (unless you are the only one providing that service.) And marketing is important in this scenario too.
The point is, the smooth functioning of any business takes a lot of work. There are many things that must be considered and taken care of—administration, HR, sales, accounting etc. Given that a small business owner is usually going to have to pick up all these skills in a hurry, it’s quite likely that one aspect might get ignored.
Often, it’s bookkeeping/accounting that doesn’t get the necessary attention.
Fear of What Good Record-Keeping Will Reveal
Sometimes, bad bookkeeping is just due to oversight. But other times, it happens because the small business owner might actually be afraid of what good record-keeping will reveal.
- Have they already spent a great deal more than they meant to?
- Are they suffering losses that haven’t become evident quite yet?
- Will they have to shut down soon?
Many small businesses go out of business in the first six months due to a lack of capital. Running a business costs more than most business owners anticipate.
But this doesn’t mean you ignore accounting/bookkeeping altogether. In fact, managing your books well from the beginning will help you to make sure that you don’t go over the budget you’ve set for yourself.
Knowing How Much Money You Have Up-Front
The most important thing you need to know is what your company’s overall budget is.
- How much money do you have at your disposal to make a go of this thing?
- Do you have savings? Is your spouse helping out with their savings?
- Do you have a friend or a partner who wants to invest in your business? How much do they want to put up?
- Have you managed to secure a loan from the bank? How much are they willing to give you?
Make sure you have a number in your head. Write that number down where you’ll see it every day. Tell people to remind you of that number every time you spend money on your business. Knowing where you’re starting out from is going to be the most important aspect of getting your business off the ground.
Writing Down Work-Related Debits and Credits
If you’re not in a place where you can hire a bookkeeper/accountant to help you out, you need to start writing things down yourself. This is also a task that you can assign to an assistant/manager, as long as that person is detail-oriented and has a good head for numbers.
- Debits and Credits: Bookkeeping can be as simple as carrying a small notebook in which you jot down all work-related transactions. You can make two columns—one for debit and one for credit. The credit column should contain a notation of all the money you make—all the revenue coming in, as well as that sum which you had in the beginning. In the debit column, note all the money going out in terms of company expenses.
- Coordination with Your Staff: Bookkeeping is really as simple as writing down all the debits and credits. And if you’re not the only one spending money on your business or writing down money that comes in, you need to coordinate with everyone else who is doing so at your business. This coordination can be done on a daily or weekly basis. Doing it daily is preferable, of course, but if it’s not possible then at least weekly.
Writing things down has the advantage of making things seem more real and might even help you to curb your expenditure in the long term.