What are some small business bookkeeping basics?
Basic number one: you need to do it. It needs to happen.
Now, this video is not going to be a do-it-yourself tutorial. Personally, I don't think it's a good investment of your time as a business owner to learn how to do bookkeeping yourself. Find someone who is a trained accountant. We see a lot of small business owners where, by default, the spouse ends up doing the books, or they hire one of their teenage or young adult children simply because of the relationship and the trust factor—which is great. You trust them as a person, but you shouldn't necessarily trust them with your books if they're not accountants.
With clients who go that route, we see so many mistakes in their books. As soon as you have the cash available, I recommend leveraging that money to free up your time and ensure the books are done properly. If you can afford it from day one, have a bookkeeper handle it for you. And if you're just starting off, chances are you can get away with hiring a part-time, hourly bookkeeper—outsourced—because they’re only going to spend two to three hours a month on your books.
As the business grows, the time commitment grows too. In our firm, for example, we process thousands of payments every month. Just the sheer volume of accounting that needs to be done means we have one of our team members in the books very regularly, sometimes even daily. Depending on when payments are hitting, it might take two to four hours in a single day.
Most of our small business clients, however, only need bookkeeping done monthly. The important thing is that your books are getting done regularly. Don’t wait. Don’t let it accumulate until you’re six, seven, eight months—or even years—behind.
A basic principle of using bookkeeping is that you should be able to look at reports regularly. How often you want to review those reports may determine how often you want your books updated. But that’s where your time investment should be—learning and understanding how to analyze your financial reports. Not in creating them. Not in typing in that you made a purchase at Home Depot or Best Buy.
A better use of your time is learning how to read a profit and loss statement and understanding what it means for your business. That’s a basic bookkeeping skill every business owner should have.
Now, if you’re bootstrapping and feel like you have to invest the time to do it yourself, go for it. There are a lot of free videos out there on how to use software like QuickBooks Online, which dominates the market. Xero is another competitor in the space. Feel free to do a demo and decide which one you prefer. Most of our clients use QuickBooks Online.
Hopefully this helps. Maybe it’s not the basics you were expecting, but as an accountant who’s been in the industry for a long time, these are the basics you need to know as a business owner:
- You need to get it done.
- It's better to leverage your money so that someone does it properly.
- Don’t use a relative just because they’re family.
- Learn how to understand and analyze reports—that's a great use of your time.
Remember: Profit is a choice. Have the courage and wisdom to choose it.
