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BUSINESS ADVICE •  3 FEBRUARY 2023 • 6 MIN READ

Bookkeeping basics: how to make bookkeeping as stress-free as possible

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Keeping accurate records and understanding bookkeeping are essential to running any business, but it doesn’t have to be a stressful experience. Whether you operate as a sole trader or a business, keeping on top of this area will save you time and danger - as well as help you keep track of your financial performance over time.

Keeping good records not only helps you monitor how your business is doing from month-to-month and year-to-year, but will also enable you to meet your tax obligations and file taxes on time. Businesses with strong bookkeeping skills are more likely to take note of their own strengths and weaknesses, allowing them to plan a better strategy for success in the future. 

However, for many business owners, bookkeeping can be one of those dreadful chores; we all know what it’s like to procrastinate until the last minute.

In this blog, we'll cover bookkeeping basics and 9 tips to make the process as stress-free and easy as possible. 

Bookkeeping basics

What is Bookkeeping?

Bookkeeping is the process of recording financial activity and tracking it through your business cycle. It’s one of the most important parts of running a business, as it keeps track of every financial transaction. Put simply, it shows where your money comes from and where it ends up. It also helps calculate how much tax you need to pay to the IRD. 

Although your bookkeeping can be done with spreadsheets or even pen and paper, we highly recommend using cloud-accounting software (e.g., Xero, Myob) to automate the process and make sure nothing falls through the cracks. 

Why is bookkeeping important?

Aside from the above, bookkeeping is important as it allows you to track your company’s financial performance and it can help you to understand where your company is making money, and where you could make changes or improve. 

Without a good bookkeeping system, it is very difficult to determine if your business is profitable, solvent or positive in cash flow.

It also allows you to forecast future cash flow and decide how much money you should be setting aside for taxes or other financial obligations.

Bookkeeping: what should I track?

  • Business income and outgoings: Income includes any money that comes in from sales, investments, or other sources. Beyond income, you should also record any payments or disbursements within your accounting software. This includes expenses, investments, or any other transactions that affect your business cash flow. While different businesses have different standards, it’s a good idea to record every transaction related to your business’s finances. This can help you track performance and identify areas where you may need to make improvements.
  • Business assets: Assets are the things that you own, such as buildings, vehicles, or equipment. This can also include raw materials that haven’t yet been turned into a finished product. You should record each asset within your accounting software as soon as you obtain it (such as a gift or other type of transfer).
  • Business liabilities: Liabilities are the debts that your company owes. These can include loans that you have taken out to finance company operations, tax debt, or any other financial obligations. You may also want to record any financial guarantees or other promises that you have made that could put your company at risk. You should record all of your liabilities as soon as you become aware of them. Lastly, if the debt is still outstanding, you may also want to record any payment terms that you have agreed to.
  • Monthly repayment tracking:  If you have a loan from a bank, financing partner, or any other financial institution you will likely have to make monthly payments. It’s important to keep track of these payments so you don’t default on your obligations, and keep a record of them. You may also want to set up a separate accounting category (or sub-account) to keep track of these monthly payments. This can prevent you missing any payments, or facing penalties such as a fine.

What should I record? 

As a minimum for each transaction, you should record:

  1. The date
  2. The amount
  3. The payee (who you pay) or payer (who paid you)
  4. The category or general ledger code, if using an accounting system
  5. Description or further important information

9 top bookkeeping tips for business owners

1. Create a business bank account 

Keep your personal and business bank accounts separate, even if you’re operating your business as a sole trader. Mixing your business income and your personal finances can only complicate matters, costing both you and your accountant valuable time and energy to sort out which expense is for your personal use and which is for your business use.

Opening a business bank account is simple. To start, find a bank which suits your needs. Make sure to look out for any annual, transaction, cash deposit or withdrawal fees. Once you have opened a business bank account, you can connect it with cloud-based accounting software. This will enable you to keep track of your finances from one reliable platform.

Having a separate business bank account doesn’t prevent you from being paid. In another blog, we go through what you should know on withdrawing salaries from your business.

2. Put money aside for taxes

Rather than getting a surprise tax bill when the due date comes around, it’s a good idea to set aside some money for taxes (e.g., GST or income tax). This way you’ll pay the right amount, at the right time. At Beany, we often recommend you put aside 30-35% of your income. However, depending on your annual income and tax obligations, this percentage will vary. Book a meeting with one of our problem solvers today to learn more about the best tax planning and management strategies.

3. Keep tax deadlines in mind

Tax deadlines are important for bookkeeping. You need to be sure you file your taxes on time so you don’t need to pay fines or penalties - so keep tax deadlines in mind and always plan ahead!

For example, make sure you file your income tax before 7 July, unless you’re granted an extension.

4. Keep track of the cash payment

If there's cash involved in your business, that adds another layer of complexity. Not only do you need to know where it is, it doesn’t come with the convenience of paper trails or documentation (unlike cheque online payments). Fortunately, once you have an accounting and bookkeeping system in place, tracking cash income and expenses is much easier.

To keep a record of your cash payments, you can opt in for a cloud-based accounting software. This lets you access the software via multiple devices (mobile or laptop). It’s important your documents or applications for tracking cash are quickly accessible, wherever you are. Make sure to use your streamlined online system to keep track of how much cash you exchange and why.

5. Organise your financial documents from the beginning

One of the most important components of an effective bookkeeping system are organised financial documents. Without them, you won’t be able to accurately track any financial information and won’t be able to prepare accurate financial statements.

Start by creating folders for all your financial documents (e.g., receipts, bank statements, contracts), and be sure to keep them in cloud-based accounting software such as Xero. This will help you stay organised - making it easier to find any documents you need, at any given time.

6. Outsource your bookkeeping services

Keeping accurate records is essential, however it’s not all you need to do as a business owner. In fact, if you’re trying to build or grow your small business, investing a lot of time in keeping track of your finances could be counterproductive. If you’re struggling to keep up with your financial records, or don’t want to spend the time doing so, you may want to consider outsourcing your bookkeeping to a professional. Most accounting firms offer bookkeeping services.

Similarly, if you wish to reduce stress, (such as always making sure you're filing the right amount, and meeting the tax deadlines), it may be beneficial to outsource your taxes as well. By hiring a tax accountant, you can be sure your taxes are done correctly.

7.  Pay all your bills on time

Paying bills on time is an essential part of bookkeeping. Not only do you need to pay your bills on time to avoid incurring late payment fees, but you also need to record their due dates in your accounting software. Be sure to record any important details - such as the name of the company you’re paying, and the due date.

8.  Keep good records of any equipment you own

If you own equipment that you use for business, such as a computer, a car or truck, it’s important to keep track of its value. If you sell the equipment, you’ll need to know what it’s worth in order for your accountant to accurately report the gain or loss on your taxes.

9. Automate your bookkeeping and accounting process

Automating your bookkeeping and accounting process simplifies your life. You can use accounting apps and software to streamline your bookkeeping and accounting tasks, especially by customising rules in your software. You can skip most of the tedious manual labour of bookkeeping, such as data entry, by combining the right accounting and banking apps. Once you find the proper bookkeeping and accounting software for your needs it makes things much easier - you will simply be double-checking transactions, rather than entering them.

Conclusion

These are just a few tips for keeping your bookkeeping as stress-free as possible. If you’re finding that bookkeeping is becoming stressful or difficult, it may be worth talking to an accountant or bookkeeper to find out whether they can offer any suggestions. By following these tips, you can rest easy knowing rest assured that your business is being well-managed.

Tess, Problem Solver

Got any questions about Beany?

Chat to one of our friendly problem solvers today to get clarity.

Who are Beany? 

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​

We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.

Tori as a dog

Tori Ma

Performance marketer

Performance marketer at Beany, and into true crime documentaries.

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