By Umair Javed

Small business owners and entrepreneurs face many challenges when setting up their businesses. One of these challenges includes accounting and bookkeeping, which are complicated tasks that require specialization. It is a skill that is not part of every entrepreneur’s skill set, yet it is a fundamental part of a business.

So how can entrepreneurs take care of their bookkeeping with no previous experience? This is a 6-step bookkeeping process that entrepreneurs with zero prior knowledge of bookkeeping and accounting can leverage for their business’ accounting.

But before we dive into that, let’s first define  Bookkeeping for entrepreneurs.

What is Bookkeeping?

Bookkeeping is a part of a business’s financial management. Bookkeeping involves the complete recording of a business’s financial transactions. 

The process helps in ensuring the maintenance of accurate information. It allows business owners to make informed business decisions, and have a strict oversight on their business’ expenditure, sources of revenue and tax deductions that they can claim.

Bookkeeping is an essential business function that ensures that a business is successfully run. While startup owners often don’t think that it is a necessary process, in the long run, it is a vital part of a business’ strategy to achieve sustainable revenue and profits.

For entrepreneurs without a finance background, learning about online bookkeeping is incredibly crucial. The problem is that they don’t have the time to go back to college to get an accounting degree while running a business. 

As such, this guide acts as a walkthrough that helps entrepreneurs understand and execute basic bookkeeping procedures in 6 simple steps. Let’s take a look at what these steps entail.

• Separate Your Personal Expenses From Your Business Expenses 

Separating your business and personal finances is an effective strategy to track business transactions. It makes reconciling bank statements much easier and saves you a lot of financial trouble. 

There are a number of ways through which you can separate your personal and business expenses

• Establish Separate Legal Entity For Your Business
• Establish A Business Checking Account
• Pay A Salary To Yourself
• Separate Your Receipts To Ensure You Are Never In Trouble With The IRS.

These are some of the strategies that you can employ to ensure that your personal and business expenses never merge.

Establishing your business as an LLC, S Corp, or C Corp comes with many advantages, including the protection of your personal assets from debts, losses, and potential lawsuits that your business might face.

• Choose Your Preferred Bookkeeping System

Bookkeeping can be done in two different ways. The two methods are called the single-entry method and the double-entry method.

The method you choose is dependent on your expertise and the type of business, and there’s no right method. Both of these have their advantages and disadvantages. Once you choose your system, make sure you follow it with consistency. Let’s discuss these methods in a bit more detail.

The single-entry method is based on one-time transaction recording. Every transaction you make is recorded as an expense or income. It’s a straightforward bookkeeping method and is simple enough for someone with no prior bookkeeping experience.

Business owners can track their assets and liabilities separately to ensure accuracy and crystal clear records. This method is best suited for businesses with no inventory or equipment storage. If you won such a business and are taking care of your own bookkeeping as the business owner, this approach might suit your business needs.

The double-entry system is a bit more complicated. It involves a comprehensive recording of your business transactions. Here, business owners have to manage journals for all business transactions in which each transaction is recorded twice into the ledger, labeled as either a debit entry or a credit entry.

Let’s simplify this with an example.

If you buy any hardware for your business using cash, you credit the cash account with the accurate cash amount and debit your hardware account just the same.

The one rule that applies to double entries is that the sum of the credit and debit entries in the ledger should always be equal to zero.

The double-entry method is obviously more complicated but is a far more robust system to leverage for businesses. You can employ this system by hiring an in-house bookkeeping resource or a team. If your business can not take up such a cost, leveraging online bookkeeping services from trained professionals is also an efficient strategy to maintain your books in a clean and transparent manner.

• Select An Accounting Method For Your Business

Bookkeeping is an annual procedure and requires diligent record-keeping throughout. Before you start recording your books, you should be aware of the two accounting methods that you can choose between. They are as follows:

• Accrual Accounting
• Cash Accounting

In Accrual Accounting, your business transactions are recorded as an invoice is generated, be it income or expenditure. 

The moment you generate an invoice or a bill for your customer, you record the income even if you haven’t received the payment associated with it.

On the other hand, if its expenditure, as soon as you receive an invoice or a bill, your record deductions even if you plan to make the payment at a later date.

In Cash Accounting, you can only record transactions when money is exchanged between two parties. For example, you will only enter an income to your records after your client pays their bill. If it’s an expenditure, you enter the record only after you make the payment.

So, how do you decide which of these to follow? Well, accrual accounting is best suited for businesses that manage and store their inventory in advance, whereas, for businesses that don’t cash accounting will get the job done.

• Categorize Your Business Transactions

As a business owner, you have to categorize your transactions when you enter them into your books. This is a practice that ensures that during audits, your accounts and books are crystal clear.

There are 5 general categories in which business transactions can be categorized.

• Assets
• Liabilities
• Owner’s Equity
• Expenses
• Revenue

These categories allow you to streamline your business’ finances and financial records. Each of these categories can have sub-categories based on the size and type of your business.

If you plan on creating categories and sub-categories, it’s best to attach a note to each of your transactions to ensure that none of your transactions are misallocated or wrongly categorized.

This is important for clarity of record, seamless auditing, and accurate information for informed business decisions.

If this sounds like a lot of work, that’s because it is. Bookkeeping isn’t child’s play, but that doesn’t mean you can’t do your own bookkeeping. If you think you need more professional oversight to ensure your business’ growth, you can always hire a bookkeeping company to take care of your books in a hassle-free manner.

• Organizing Your Records For The Tax Season.

In the old days, businesses had to ensure the documentation of transaction records in forms of receipts and huge files at their office as proof of transaction. 

During every tax season, the business has to provide supporting documents for their expenses in the form of receipts. However, the digital age has made physical records and receipts unnecessary.

Businesses today are leveraging cloud-systems such as Dropbox or Google Drive to maintain e-records and e-receipts since IRS allows digital records to be submitted as proof of transactions. 

Tools such as Shoeboxed have also become more and more popular as receipt tracking platforms that ensure IRS compliance. 

For businesses, it is crucial to ensure complete documentation of their financial records to keep themselves safe from any troubles with the IRS.

• Leverage Potential Deductions 

A business expense is deductible if it is an ordinary and necessary expense. An ordinary expense is one that is commonly found expense in your industry, while a necessary expense is one that improves your business’ functions and performance.

Let’s take an example of this. If you are an owner of a restaurant, then the expense of buying cutlery is an ordinary and necessary expense in the industry.

So how can business owners understand which of their expenses are deductibles? Thankfully, there’s an IRS guide that outlines exactly what qualifies as a deductible expense and what doesn’t.

Business owners can use this guide to figure out which of their expenses can they leverage deductions.

Sounds Complicated? You Can Leverage Professional Online Bookkeeping Services To Deal With Bookkeeping Hassle.

If you’re feeling overwhelmed with the details, it’s completely natural. Though business owners and entrepreneurs with zero previous experience of accounting can follow these strategies to ensure effective bookkeeping, you can always leverage online bookkeeping services for your business.

Online bookkeeping services allow you access to cutting-edge financial technology such as QuickBooks and accounting systems that ensure your business’ financial success. So if you think you can do better without having to deal with complex bookkeeping problems, you can leverage those services for augmented results.

Author Bio

Umair Javed is a highly renowned professional in the field of outsourcing solutions for the accountingand financial sector. He has over a decade of industry experience and he is now bringing it to use byoffering his insights on the latest in this field for the benefit of the industry.