Looking after your business cash flow gets more complicated the bigger your business gets. You have more money coming in, but also more expenses and more staff to keep track of. To manage your budgets, accounts and resources you’ll need an accurate bookkeeping system.
What is bookkeeping?
Bookkeeping involves recording all your money movements in and out to get a snapshot of your financial health, profits and loss and be able to reconcile with bank records. Having a well-kept bookkeeping record is essential for keeping track of your daily money movements, forecasting and setting budgets as well as allocating funds to your projects.
Bookkeeping vs Accounting
Most businesses already use an accountant to handle their tax lodgements and look after the broader financial needs every year or quarter. A bookkeeper will gather receipts and keep a record of the smaller transactions each day so that your finances are in better order for your accountant to go over later on.
Types of bookkeeping
Bookkeepers can choose between single-entry or double-entry bookkeeping as well as accrual and cash to record business money movements. The right ones depend on the size of your business and how complex your income and expense items are.
Each item is entered either as a credit or debt in a very simple and straightforward record. This quick approach is great for small businesses that don’t have complex income, expenses or sales.
Double-entry accounting is a more professional method where each transaction is entered as both a debit and a credit with the aim to balance out at the end.
Accrual-based vs cash-based
Money doesn’t move through your business consistently. There are invoices not yet paid and goods not yet received (accrual) as well as the moment when actual cash is paid in or withdrawn (cash). You need to choose which to record. Cash is more accurate while accrual is more professional.
Financial statements are records of an organisation’s financial health. As well as your daily income and expenses records they include assets, liabilities and equity. Statements are used to forecast financial performance, allocate resources and make corrections for improvement. There are three main statement types which all capture different information and pride feedback on different aspects of your business:
- Statement of cash flows
- Profit and loss statement
- Income statement
A great reason to undertake bookkeeping is to ensure your accounts are accurate and be aware of discrepancies. A bank reconciliation is a record you can use to check the accuracy of your bank statement.
Bookkeeping best practices
Keeping track of your finances with bookkeeping is a great start but it needs to be accurate if it’s going to be useful for your business. To make it work you’ll need to follow some best practices that include:
- Keep to deadlines
- Maintain proper records
- Store receipts
- Keep personal and business accounts separate
You don’t need a degree or accounting knowledge to oversee your books, just some dedicated time and organisation. Talk to a professional bookkeeper about how they can help you set up the right system to manage your money well.