So you recently started a business (Congratulations!!) and you’ve heard that you should be doing this thing called bookkeeping. You have so many other items on your to do list, such as branding, marketing, and networking, you’re probably wondering what the heck is bookkeeping anyway and if you really need to add it to your already super long list.
I’m here to tell you that if you take your business seriously (and you should!), then, yes, you (or someone else) must do the bookkeeping for your business. It is vital.
What is bookkeeping?
In it’s simplest form, bookkeeping is the daily recording of financial transactions of a business. To take it a step further, it is posting the transactions to the correct accounts and reconciling those accounts on a monthly basis. Bookkeeping, when done properly, allows you to understand the financial health of your business.
What are financial transactions?
The daily financial transactions of a business include any money that is received by the business or is paid out by the business. Some examples include:
- Sales of products or services
- Purchases of assets (examples: equipment, furniture, fixtures, inventory)
- Payments of debt (examples: loans, line of credit, credit cards)
- Payments for expenses (examples: rent, utilities, supplies, labor, subscriptions, hosting fees)
Why is bookkeeping so important?
Without bookkeeping, you have no way of knowing the financial health of your business. You may know that you are making sales, but without recording all of your financial transactions, it’s impossible for you to know if you are making a profit on those sales. If you don’t track your expenses, you cannot know if you are overspending (or underspending) and therefore you cannot make educated decisions about your business.
Bookkeeping is also necessary so that you can file your taxes. You are required to report the income from your business, but you are allowed to offset that income by the amount of your business expenses, which reduces the amount of taxes you may owe. (Please consult a tax professional for specific advice about your business and your unique tax situation.)
How do you do bookkeeping?
If your business is one with very few transactions, you could track all of your financial transactions in a spreadsheet. I don’t recommend this method, but if your budget is very tight and you only have a few transactions, it could work for you in the short term.
If your business is more complex, you should find a bookkeeping software that meets your needs. A quick Google search will give you many software options.
You can either do it all yourself or outsource it to a professional bookkeeper. If you decide to go the outsource route, I recommend you find a bookkeeper that is experienced in your industry.
Regardless of how you do your bookkeeping or who does it…Just do it. :)