Small Business Bookkeeping: A Guide

For a small business, bookkeeping is essential; without it, the rest of the finance function can’t… well. Function.

Why is it so important, you ask? Bookkeeping is how accountants and business owners track every penny in the business.

When we support businesses, we rely on the information gained from bookkeeping.

Without effective bookkeeping, you wouldn’t have a clear idea of your business’s financial performance.

Imagine not being able to look at your bank accounts for a year—you wouldn’t know if you’re overspending, missing bills, or accumulating fees. It’s the same when you neglect bookkeeping.

Because bookkeeping is crucial to your business’s success, we’ve created this handy guide for small business owners to manage it themselves.

In this guide, we’ll cover:

• How We Can Help You
• Setting Up Your Own Bookkeeping System
• Key Elements of Bookkeeping
• Avoiding Common Mistakes

Small Business Bookkeeping With Us

But first, (clears throat) (adjusts tie) (straightens hair) it’s time for the sales pitch…

Bookkeeping is tedious and can be confusing if it’s your first time.

As a small business owner, working with us will give you back valuable time, better spent on your business rather than hunched over a spreadsheet.

But we don’t just save you time. With a magic mix of our expertise and apps, we gather data through our bookkeeping service to offer advice that you can use to achieve your dreams.

Advice That Can Help You:

• Build the ideal business plan.
• Get an accurate value of your business for a sale.
• Know exactly what you’ll be paying on your VAT returns.
• Most importantly, get bespoke advice during your quarterly catch-ups.

If you’re interested in seeing what we offer, contact us.

You Can Go Your Own Way – Part 1: Apps

However, if you decide to go it alone, we want to help you out with some advice on doing bookkeeping in-house.

If you’re a small business owner, you may be trying to keep records in an Excel sheet, with potentially hundreds or thousands of receipts to sort through.

Xero

There is a much easier way: cloud accounting apps like our much-beloved Xero. Xero can massively speed up the time it takes to complete these tasks.

Xero’s key selling point is its ability to give you access to your business finances anytime you need. Using Xero you’ll be able to automate most of your accounting operations by picking a range of other cloud apps to work within the system. Take pictures and upload data instantly, making mundane tasks quick and easy.

Xero also offers you a real-time view of your cash flow, meaning you can simply open the app and check your business finances.

Dext

Once you’re up and running on Xero, our second favourite app is Dext. Dext comes in three parts:

Dext Prepare: extracts the necessary data from receipts by simply taking a picture, cutting the time it takes on standard data entry. The software also pairs seamlessly with Xero, updating all important financial reports and giving you live updates on your business cash flow. With all the software we recommend, they scale with your business as you grow.

Dext Precision: Turns this data into valuable insights, giving you a better understanding of what the numbers mean. It does this with precision with its main function being its ability to quality-check the data you feed it, meaning you can be assured your reports are accurate.

Dext Commerce: Pulls data from all your business e-commerce sites and point-of-sale platforms into one easily accessible report. Dext commerce lets you track how your products are performing on each e-commerce platform, allowing you to make well informed decisions about your business.

Sage

If you know us, you know we’ve always been loyal to Xero, especially after our 2023 large firm of the year award win. However, we do have to admit Sage is pretty good.

Sage is quite similar to Xero in the service they provide, however there are some differences to be aware of. For a complete comparison, check out this article where Forbes has compared the two.

Sage, like Xero, provides key accounting features, including invoicing, tracking your expenses which help with an overview of your cash flow, and financial reporting.

Thanks to these features, software like Sage and Xero, can help you scale your business more easily.

Go Your Own Way – Part 2: Method

Now that you’re all set up with the app of your choice, how do you use these apps to keep on top of your bookkeeping and maintain accurate cash flow?

Let’s break down each step of effective bookkeeping:

Keep Records

Even though the software we’ve recommended is brilliant, there’s only so much it can do. For efficient bookkeeping, you must keep records of every transaction, both cash and card.

Collect Your Cash

Once you provide a product or service to a customer, they will usually pay for the product up front. However, for many businesses, especially B2B companies, the payment terms may differ, meaning they instead will become a debtor, that owes money to the business.

Debtors are accounted for as a current asset, which basically means it’s a liquid asset the business can expect within one year. However, if the debt doesn’t get paid, then your business is worse off. As a result, the process of chasing payments becomes a long and laborious job that is often lumped on business owners.

For support chasing your debtors, we recommend Chaser. Why? Because Chaser takes the hard work of managing the money you’re owed off your hands. How? It automates the whole process of chasing payments for you, so you can create personalised messages that are sent to debtors after a period of time that you decide. The chaser email looks like a genuine email from your personal email, meaning it’s less likely to be ignored, and from our own experience, it’s a great way to reduce debts.

Chaser also has a whole host of many other features, such as the ability to highlight debtors at risk of late payment so you can get ahead of the game.

Review, Review, Review

Regularly double-check your ledger against your bank statements and receipts to ensure accuracy. This is also known as bank reconciliation, an added layer of protection in case anything slips through the cracks.

Bank reconciliation is important because mistakes are common, especially if you have to file many invoices and receipts in one go.

Incorrect bookkeeping can lead to cashflow issues, where you may be spending cash your business doesn’t actually have.

Or, if the prospect of this seems overwhelming, getting an accountant to take care of your bookkeeping will leave you more time to do the things your good at.

Step Back and Look at the Bigger Picture

If you’ve been doing your bookkeeping efficiently, you’ll be able to step back and dig deep into the numbers. Whether your goal is to scale your business, keep things steady, or prepare for a sale, the accounts from your bookkeeping efforts will inform your decisions. Up-to-date numbers, mean informed business decisions, and without regular and up-to-date bookkeeping, you’re feeling around the dark. Management accounts give you a wider perspective of how things are doing, looking at everything from cashflow, profitability and debtors, to non-financial stuff such as sales or social media. The idea of management accounts is that it’s built around your business, and it gives you an overview of the stuff that matters.

How to Avoid Getting It Wrong

Effective bookkeeping is the cornerstone of every successful business, getting it wrong can have dire consequences, the main of which being potentially serious cashflow issues. As a result, it’s incredibly important that business owners ensure regular bookkeeping carried out by a professional to ensure your numbers are up to date and nothing is missed.

Disregarding the Small Charges

You’d be surprised at what minor expenses you can claim tax relief on. As the old saying goes, look after the pennies, and the pounds will look after themselves. Not keeping track of smaller transactions will soon catch up with you. Staying tax efficient and planning ahead, is the corner stone of every great business, and getting tax advice early on can be huge for helping you save money.

Not Checking Your Work

Bank reconciliation is crucial. Failing to do so will mean money slips through the cracks and as mentioned, lead to serious cashflow issues.

If you’re struggling with bookkeeping and find yourself making many repeated errors, many apps like Xero and Sage can automate most of this for you.

However, it’s still wise to get help from an accountant, as although apps help keep track, an accountant who knows their stuff is the real answer to getting rid of any unnecessary errors.

Entering Data Twice

A common mistake is the double entry of an expense or sale. This is why you need to double-check your books through bank reconciliation and we’ll keep saying it till we’re blue in the face.

An accidental double entry can be easily noticed and resolved, but failing to do so can leave you with incorrect financial figures.

But as mentioned earlier, often the best way to avoid these things is to give control to an accountant who takes care of your bookkeeping for you.

Final Word

For small business owners, bookkeeping is an essential part of running the business efficiently.

Bookkeeping doesn’t have to be difficult and we are here to support you with a range of accounting services on top of your bookkeeping.

For those who decide to go it alone, there is a range of software providers competing to make your life easier. If you’re just getting started, consider Xero and Sage (although we prefer Xero).

Remember, a magic piece of software can’t do everything for you. Ensuring accuracy through bank reconciliation is vital.

If you need any further assistance with bookkeeping, get in touch with us today and our accountants will help.