How to Keep Books for a Small Business: 13 Tips to Follow

If you dread bookkeeping but feel it ’ s not worth outsourcing, you ’ rhenium not alone. many entrepreneurs successfully handle their own fiscal books .
The good news program is that when you learn how to keep books for small occupation, it makes significant decisions easier and minimizes preventable fiscal mistakes .
good bookkeeping—that is, the read keeping of your business ’ s fiscal information—organizes your data, files, routines, and workspaces ( which, depending on what you do, can take you anywhere ). The benefits are major :

  • Good bookkeeping preps your business for scrutiny, whether you get assessed in an audit, sized up for a loan, or when trying to attract investors.
  • Good bookkeeping gives you solid, up-to-date material to build insightful reports.
  • Good bookkeeping helps you plan things like staffing, growth, and supply chain management by giving you a list of everything that’s happened financially in your business to date.
  • Good bookkeeping can even improve your productivity.

Sound like things you want ? then you ’ re fix to learn how to keep books for little clientele. Start by implementing these 13 bookkeeping and account fundamentals.

1. Learn basic bookkeeping concepts

The first step is to familiarize yourself with some essential bookkeeping concepts .
first, you ’ ll have to expand your definition of the word “ accounts. ” In bookkeeping, accounts are categories like income, expenses, assets, liabilities, or equity. Accounts besides are called journals. In this article, we ’ ll continue to use the term accounts for ease .
Another concept to familiarize yourself with is the theme of double-entry bookkeeping. Double-entry bookkeeping is the discipline of recording every transaction twice—once for where the prize came from and again for where it went. ( We cover double-entry bookkeeping in more detail further down in this article, so hang tight. )
Most businesses use double-entry bookkeeping because it provides a second layer of verification and software documentation. This gives you a second trail to follow when eyeballing discrepancies, looking for trends, and thwarting fraud .
Of the other authoritative bookkeeping terms you should learn, there are two to memorize from the scram go .

  • Accrual-basis accounting: It’s when you record transactions when they’re made instead of when the cash, products, or services are actually handed over. The practice gives you a better picture of how revenue, expenses, assets, and liabilities can work together.
  • Cash-basis accounting: In contrast to accrual-basis accounting, it’s when you record transactions when cash is exchanged instead of when products or services are handed over.

For even more helpful context, read our dapper glossary of bookkeeping and report terms, which goes more in depth about common words and processes that you may use as you start to dive into the fiscal side of running your business .

2. Open a separate business bank account

Experts at the U.S. Small Business Administration ( SBA ) say that using a business bank report gives your company personal indebtedness protection, some badly next-level professionalism, readiness in the form of credit, and purchasing world power. It ’ second besides important to keep your personal expenses separate from your business expenses for reporting and indebtedness reasons .
To find the best bank account for your business, expression for more benefits than equitable low fees ( american samoa tempt as that may be, because who likes fees ? ). Find an score that gives you relevant, immediately applicable perks that map straight to your goals. For exemplar, monthly minimum fees may be best for businesses with high volumes of transactions but not those in a retainer-based business with few clients .

3. Develop a bookkeeping database that works for you

future up ? Deciding how you ’ ll organize your records, the way you ’ ll keep cut of fresh casual transactions, and a act ( on a meter that you can realistically stick to ) to help you stay on top of your business ’ sulfur money .
In terms of tools, there are two viable options that make keeping track of expenses, income, and cash stream simpleton :

  • Web-based bookkeeping software. Online bookkeeping apps let you log in to any browser, and add/categorize your transactions, unlike the (outdated) on-premises tools of previous generations.
  • Cloud-based bookkeeping tools. Tools hosted in the cloud take accessibility a step further, making it easier for you to input, code, manage, recall, and store information (and corresponding source documents) offline and sync your work with your database once reconnected to the internet.

So…you may notice spreadsheets aren ’ thyroxine listed as a feasible choice. Spreadsheets are simple, unblock, and seem like a reasonable choice for a new business or adventure into the gig economy, right ?
well, not quite. Spreadsheets may be an okay option as a temp fixate for having absolutely nothing ( if that ’ sulfur you, we see you—you can use the templates that we created for your invoices, income argument, and balance tabloid ), however :

  1. They’re simply not sustainable to keep up to date in the mid to long term and
  2. Are likely to leave you overwhelmed amid the other management tasks that you have to do without a true high-level understanding of what’s important or trending in your business over time.

If you ’ re still using Google Sheets or Excel and are feeling like you don ’ t know what the heck is going on with your business ’ mho finances, it may be meter to upgrade to software that gives you relevant, actionable information .
Whatever bookkeeping software you choose, it ’ randomness superintendent important that it automates insistent, soul-sucking bookkeeping tasks like data entry and transaction-record match ( because starting or running a business is intemperate enough—you ’ ra gon na want time to recuperate doing something playfulness ) .
Automation, ultimately, is linked with clientele growth. Salesforce research reveals that “ …growing SMBs [ small and medium-sized businesses ] are 1.6x adenine likely as their stagnant/declining counterparts to say they ’ re using technology to automate clientele processes. ”
Image showing percentage of stagnant and growing small businesses using automation
Source: Salesforce Small & Medium Business Trends Report
For example, NeatBooks, our own bookkeeping app for humble businesses, automates bookkeeping tasks and stores transaction data in a goodly, secure, cloud-based arrangement that you can access on your laptop or telephone .
A screenshot of NeatBooks File Cabinet dashboard.
With today ’ randomness fluid, intuitive tools, you don ’ t need to have an accountant ’ randomness knowledge—or hire a professional bookkeeper—to log, categorize, and match transactions. Apps like NeatBooks free up fourth dimension that you can dedicate to other tasks ( like selling more of your products/services or last watching that gerbil video your supporter texted you four days ago ) .

4. Chart your accounts

As payments start coming in and expenditures begin adding up, you ’ ll determine you need to do more than just criminal record them—you ’ ll have to sort them into their own categories. If you categorize your transactions, then at the end of a month or year, you ’ ll be able to see how much money each class added to your income or costs .
Remember that these categories are called journals or accounts. If you organize those categories into a table, you have a ( title cased ) Chart of Accounts .
common accounts represented in the Chart of Accounts include :

  • Assets
  • Liabilities
  • Owner Equity
  • Income
  • Expenses

When you ’ ve created these buckets, you ’ ve positioned yourself to begin dropping transactions in those buckets regularly. Over clock time, you ’ ll see how a lot has gone into or out of each one, how the accounts relate to and impact one another, and even how to nurture one or two for a while to serve a specific business goal ( like growth, functional efficiency, fund, or customer retentiveness ) .
As you grow, depending on your commercial enterprise, you may want to get more specific to gather even more insightful data at the end of any time menstruation. So each of the above categories can be—and normally is—broken out into explicitly descriptive classes like :

  • Accounts Receivable (a specific asset)
  • Accounts Payable (a type of liability)
  • Sales (a specific kind of income)
  • Retained Earnings (a different kind of income)
  • Purchases (a specific type of expense)
  • Payroll Expenses (a different type of expense)

Add descriptors ( like report act and history name ) as shown in the exercise below, and voilà ! You have a robust Chart of Accounts, something that would impress any accountant. You can sort your Chart of Accounts by any header you choose. The typical view, however, is to group records by class ( sometimes called “ codes ” ) .
An example of a Chart of Accounts for a restaurant
One of the main reasons you need a Chart of Accounts is because, without it, your account books will easily get disorganized. How ? Say you categorize an equipment expense as a “ fixed asset—office equipment ” while a well-meaning employee or bookkeeper categorizes an identical expense as a “ current asset ” based on its book respect. immediately, you lose the ability to rely on your reports .

5. Register expenses to track them

now that you ’ ve choose and set up your arrangement, it ’ s time to create processes .
Start by planning a act to record your expenses. All costs need to be logged in your new bookkeeping tool in the expenses account. Depending on the size and maturity of your business ( or even if you work from home versus working in a brick-and-mortar location ), you may be spending on things like :

  • Advertising and marketing
  • Office supplies
  • Utilities and phone bills
  • Business insurance
  • Client gifts
  • Payroll (if you have employees)

Each type gets its own bookkeeping category, a.k.a. a “ code. ” ( Sound familiar ? )
Depending on which software solution you choose ( see measure 3 ), you ’ ll do this manually, or you ’ ll automatize it .
In NeatBooks, for exemplar, you can upload a word picture of any bill, acknowledge, bill, or other source document from your call. When you get back to your car, office, or couch, you ’ ll find that the data on that charge has been mechanically extracted, parsed, categorized, matched, and stored for future recall .

6. Record and monitor receivables

When you ’ re learning how to keep books for little occupation, income is your exceed priority ( naturally ). But you can ’ t improve what you don ’ t measure. mean, to monitor income long term, you need to watch your receivables closely .
Your bookkeeping system should make logging your income american samoa simple as record expenses. As datum goes in, you ’ ll see your accounts receivable ( AR ) class grow. This account is plainly the total come of funds owed to your business .
What, precisely, are you regularly scanning your are for ? Two specifics :


hera ’ s the cover : When customers ask you for changes, extras, and add-ons, you ’ re allowed to celebrate. After all, that ’ s gross .
But if the client ’ mho bill skyrockets without a healthy deposit, regular retainer agreement, or strong personal history, beware : They could bolt, leaving you in a lurch. Overall, a drift of swell AR accounts signifies a problem with payment terms and communication .

Aging accounts

Some customers allow their old, unpaid bills to linger. Your subcontract is to nip this in the bud before it becomes an topic .
In the short term, unpaid invoices debilitate your cash stream. In the retentive operate, they hurt your vital customer relationships by putting you in the awkward position of nagging customers for requital. No, thanks.

Aging accounts receivables don ’ deoxythymidine monophosphate indicate an administrative trouble. They signify a failure to qualify or clarify the initial sales kinship in the first seat. Set reminders for yourself on your calendar or use the invoice reminders feature in NeatBooks to follow up with customers who are close to their bill due date and past due .

7. Log both invoices and receipts—but handle them differently

Let ’ s get this right from the begin : invoices are not the like as receipts and frailty versa. Too often, business owners confuse the two file types for one or the early or treat them as synonym .
Invoices are a request for requital. They come to your commercial enterprise from vendors, service providers, manufacturers, and other partners. These files include details like :

  • The names of the businesses/persons involved
  • The amount owed specifically for the products purchased or services given
  • A description of those products/services
  • A unique invoice number (meaning that this invoice number is attached to one invoice only)
  • Any additional charges like taxes and fees
  • The total amount owed that includes taxes, fees, and cost of products/services
  • The due date of the total amount owed

When you receive an bill, log it as an unfold seller invoice and as a credit in your accounts account payable account .
then, when you pay that bill, you ’ ll get a acknowledge from the business associated with the bill .
Receipts are a record of requital, besides called proof of leverage ( if you ’ ve been to a grocery store memory, you ’ re familiar with this ). They can come from the lapp entities as invoices do. Receipts express :

  • The name of the vendor/service provider
  • The date of payment
  • The total amount paid
  • Extra amounts like taxes and fees

An example of an invoice and a sales receipt
Source: Kohler
once you approve and pay an invoice, you can then log the reception   as a informant document to verify the debit ( or multiple debits, if the transaction is split ) of another account .

8. Establish sales tax procedures

The next footprint in learning how to keep books for little business is to understand your duty to pay sales tax .
Depending on your industry, business model, and state of operation, you may not need to pay sales tax. To know what conformity looks like for your business, start by visiting your state government ’ south gross agency web site to clarify. For help witness that site, just type “ My state’s comptroller ” in any search engine and search for a connection with a URL that ends in .
If you find you don ’ t have to pay sales tax to remain within complaisance, then skip to step 9. If, however, you learn that your business needs to file this tax, take the follow steps :

  • Get your sales tax permit.
  • Determine what sales tax rate you’ll charge customers.
  • Configure your point of sale (POS) system or online cart to include this amount.
  • Prepare your sales tax return regularly and send payment to the state.

It may sound complicated, but it ’ s not once you get started. When you run into a hurdle, stay focused. Keep searching for answers, and you ’ ll find yourself on the early side of this tax business startup task in no time ( we ’ ll just let that pun slump in for a moment ) .

9. Determine how your customers will pay you

The following footstep in learning how to keep books for minor business is to decide what payment types you ’ ll accept and then set your clientele astir to receive funds through those channels .
first, ask yourself what matters most to you and your customers ’ interactions with your trade name. Do you want to provide a quick payment frame-up for customers ? Would you like to offer ongoing auto-drafting ( for bank accounts ) or auto-charging ( for credit cards ) options ?
once you ’ ve prioritized your needs, you can consider the options :

  • Cash
  • Personal checks
  • Credit and/or debit cards
  • Automated Clearing House (ACH), when money is withdrawn automatically from a bank account
  • Cryptocurrencies
  • Product and service trades

When you ’ ve answered these questions, lecture with your commercial banker to learn about the merchant account products they offer. If you accept in-person payments, you ’ ll buy and set up an on-line requital processor with in-person credit and debit batting order subscriber hardware and sync it to your on-line storehouse. Examples of payment processors include Square, ShopKeep, Shopify POS, and Stripe. If you work with other businesses or work immediately with clients using invoices, you can use tools like NeatBooks that have custom invoices and on-line customer payments wrapped up in one system .

10. Start using double-entry bookkeeping

The double-entry bookkeeping method mentioned earlier now begins to show its value. As a reminder, this is the practice of recording two match events for every fiscal transaction : a debit ( spring ) in one account and a credit ( inflow ) in another .
Double-entry bookkeeping shows where money comes from and where it goes—not good one or the early. The alone character of business that may not  profit from double-entry bookkeeping is the service supplier that only has a couple of large transactions a calendar month and that rarely spends a dime bag. Anything more than a six expense or tax income transactions warrants this method .
To use double-entry bookkeeping, just plan to handle every transaction twice—one in an expect way and another in a represent equal-and-opposite way .
sally, who sells seashells, uses the commercial enterprise ’ mho cash to buy a brand new “ Seashells ! ” sign for her shop at the seashore. This is what that purchase would look like if she uses single-entry bookkeeping :
A spreadsheet example of single-entry bookkeeping
And here ’ s how Sally would record the transaction if she ’ sulfur using double-entry bookkeeping :
A spreadsheet example of double-entry bookkeeping.
When you begin using double-entry bookkeeping, you have a greater ability to create fiscal reports, one of the most valuable decision-making tools .

11. Prepare financial statements

applause, applause : If you ’ ve taken the above steps, you no longer need to dread your humble business bookkeeping .
A tweet that says, "i hate bookkeeping"
Source: Twitter
alternatively, you ’ re ready to transform the cringey undertaking into a potent mechanism for creating fiscal business reports .
beginning, meet the three main fiscal reports :

  • Income statement (also called the profit-and-loss report or “P&L”). This insightful snapshot shows what revenue and other income have made their way into your business and what money has gone out. It’s good for deciding whether to increase or decrease spending.
  • Balance sheet. This report shows you the value of your assets and liabilities and how those elements work together for an overall business position.
  • Cash flow statement. The cash flow statement reveals the rhythm of money movements within your business. With it, you can determine what you need to do regularly to accelerate, hit the brakes, or change directions.

We recommend using one of the kinds of bookkeeping systems that we mentioned earlier to prepare these reports because of how much time it will save you. But if don ’ deoxythymidine monophosphate have one so far, you can use our income instruction template and balance sheet template in addition to this cash menstruate statement scout by the Edward Lowe Foundation to get by until you find a bookkeeping app that works for you .

12. Pay attention to your cash flow

What we ’ ve covered sol army for the liberation of rwanda has focused on what’s happening financially in your modest business. nowadays, we ’ rhenium going to focus on when everything happens. This synchronic money management is called genius .
precisely kidding. It ’ s good called cash flow .
The cash flow report you learned about in measure 11 lets you analyze your business ’ sulfur data and make decisions. Some of the moves you may make based on what it shows admit :

  • Balance growth with sustained spending and earnings
  • Shorten your sales cycle and tighten up your payment terms to get cash faster (e.g. by cutting 90-day payments)
  • Move inventory like it’s expensive to keep—because hey, it actually is
  • Continually renegotiate with partners/vendors to cut overhead costs
  • Learn when (and how) to hire for measured, lasting team growth

Remember that your cash menstruate management is less about what you have coming in and out and more about when your money moves. And now that you know how to keep books for modest business, you can use this timing to your advantage .

13. Maintain it all: Tips for keeping your books organized

Okay, bass hint. We ’ rhenium about done .
One last step : Learn to keep these new systems humming .
many business owners set up a big process only to watch it deteriorate over time, resulting in a black fix and a defeated office staff. here ’ s how to prevent that dull string crash .

Ensure your finance tools communicate with one another. today, most cloud-based solutions integrate with early software tools for harmonious knead. An case of that is making certain your placard or invoice software and bookkeeping software sync up. If any of your systems don ’ t plug in, reach out to your software ’ s defend teams to learn whether you ’ re getting the most out of your tools.

And last, ferment bookkeeping into your day by day and weekly act. Automating the tediousness streamlines bookkeeping, yes, but you ’ ll still be involved. For example, your new tool may suggest pairing certain receipts to diverse expenses, but you must hush approve those regularly. so set aside a meter at the end of each week ( or a few times each workweek ) to review your app ’ s exercise and look over your fiscal reports .
care is a crucial ingredient that many businesses neglect. Making sure your finance tools work seamlessly together and looking over your finances regularly ensures your new systems and processes don ’ deoxythymidine monophosphate fall apart over time .

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Category : Finance

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