FinancesHow to do bookkeeping: tips and strategies for a small business

How to do bookkeeping: tips and strategies for a small business

As a small business owner, bookkeeping might not be the most exciting part of running your company, but it’s definitely a crucial job that will help your business’ financial health. With effective bookkeeping, you’ll have the information to make informed business decisions, stay compliant with tax and payroll and help you manage cashflow.

Bookkeeping basics

Bookkeeping means entering all the financial transactions of your business, including sales, purchases, and expenses. These transactions need to be accurately documented and classified into various categories, such as revenue, rent, cost of goods sold, and operating expenses. By maintaining a systematic record of your business’s finances, you can track its financial health and see how to improve profitability and grow your business.

What’s the right bookkeeping method for my small business?

When it comes to bookkeeping, there is no one-size-fits-all approach. The right method for your small business will depend on factors such as the size of your business, the complexity of your transactions, and your personal preferences.

Two popular bookkeeping methods for small businesses are cash basis and accrual basis accounting.

Cash basis accounting records transactions when cash is received or paid. This method is suitable for businesses with straightforward transactions and provides a clear picture of cash flow.

Accrual basis accounting records transactions when they occur, regardless of when cash is exchanged. This method provides a more accurate representation of your business’s financial position but requires a deeper understanding of accounting principles.

Setting up your bookkeeping system

An organized and efficient bookkeeping system is crucial for maintaining accurate records and facilitating smooth financial operations. To set up your bookkeeping system, start by creating a list of categories that you want to track – this will be used to organise all the accounts that hold your business’s financial transactions. Common categories include revenue, rent, salaries, shipping, travel, and expenses. By properly categorizing your transactions, you can generate meaningful financial reports and easily track your business’s financial performance.

Once you have established your chart of accounts, you can begin recording your financial transactions using either manual methods or bookkeeping software. Manual methods involve using paper ledgers or spreadsheets to record your transactions. While this approach may work for small businesses with minimal transactions, it can become time-consuming and error-prone as your business grows.

Alternatively, you can leverage bookkeeping software to automate the process and streamline your record-keeping. Take a look at accounting software such as QuickBooks, Xero, and FreshBooks.

Organizing receipts and invoices

Accurate record-keeping involves maintaining organized receipts and invoices. These documents serve as evidence of your business’s financial transactions and should be kept in a systematic manner. Consider using digital storage solutions such as cloud-based platforms or dedicated apps to store and organize your receipts and invoices. This not only reduces the risk of losing important documents but also makes it easier to retrieve them when needed.

To ensure your receipts and invoices are organized effectively, develop a consistent naming convention and filing system. Assign unique identifiers to each document, such as invoice numbers or purchase order numbers, and store them in folders or categories based on their type or date. Regularly review and reconcile your receipts and invoices with your financial records to identify any discrepancies or missing documents.

Tracking income and expenses

To track your business’s income and expenses, start by recording all sources of income, including sales revenue, interest income, and any other revenue streams specific to your business. Categorize your income based on its source and ensure that each transaction is accurately recorded.

Next, track your business’s expenses. This includes both fixed expenses, such as rent and utilities, and variable expenses, such as inventory purchases and marketing costs. Categorize your expenses into relevant categories, such as payroll, supplies, and marketing, to gain a clear understanding of where your money is being spent. Regularly reviewing your income and expenses will help you identify areas where you can cut costs or invest more resources.

Managing accounts payable and accounts receivable

As a small business owner, managing your accounts payable (AP) and accounts receivable (AR) is crucial for maintaining healthy cash flow.

  • Accounts payable refers to the money you owe to suppliers or other creditors.
  • Accounts receivable represents the money owed to your business by customers or clients.

By effectively managing your payables and receivables, you can manage your cashflow to ensure that your business always has sufficient funds to meet its financial obligations.

To manage accounts payable, establish clear payment terms with your suppliers and vendors. Keep track of all outstanding invoices and pay them within the agreed-upon timeframe to avoid late payment penalties. Consider negotiating early payment discounts with your suppliers to reduce costs and improve your relationship with them.

For accounts receivable, implement a robust invoicing system to ensure timely payments from your customers. Clearly state your payment terms and due dates on your invoices, and send regular reminders for outstanding payments. Consider offering incentives for early payment or implementing late payment penalties to encourage prompt payments.

Reconciling bank statements

Reconciling your bank statements with your bookkeeping records is an important step to maintain the accuracy of your bookkeeping records and involves comparing your business’s financial records with the transactions recorded by your bank. This process helps identify any discrepancies, such as missing or duplicate transactions, and ensures that your records accurately reflect your business’s financial position.

To reconcile your bank statements, start by obtaining your monthly bank statement and compare it with your bookkeeping records. Check for any discrepancies, such as missing deposits or unauthorized withdrawals. Adjust your records accordingly to align them with your bank statement. This process helps identify any errors or fraudulent activities and ensures that your financial records are accurate.

Using bookkeeping software and tools

Bookkeeping software and tools can significantly simplify the bookkeeping process for small businesses. These tools automate many aspects of bookkeeping, such as data entry, report generation, and tax calculations, saving you time and reducing the risk of errors. Here are some popular bookkeeping software options:

  1. QuickBooks: QuickBooks is a comprehensive bookkeeping software that offers a range of features, including invoicing, expense tracking, and financial reporting. It is suitable for businesses of all sizes and provides both cloud-based and desktop versions.
  2. Xero: Xero is another popular bookkeeping software that offers similar features to QuickBooks. It is known for its user-friendly interface and robust reporting capabilities. Xero also integrates with various other business tools, such as payment processors and inventory management systems.
  3. FreshBooks: FreshBooks is a cloud-based bookkeeping software designed specifically for small businesses and freelancers. It offers features such as time tracking, expense management, and client invoicing. FreshBooks also integrates with popular payment gateways, making it easy to accept online payments.

When selecting a bookkeeping software, consider factors such as your business’s specific needs, budget, and scalability. Additionally, look for software that offers easy integration with your existing tools and provides reliable customer support.

Hiring a bookkeeper for your small business

As your business grows, you may reach a point where managing your bookkeeping becomes overwhelming or time-consuming. Hiring a professional bookkeeper can alleviate this burden and ensure that your financial records are accurate and up to date. A bookkeeper can handle tasks such as data entry, bank reconciliation, financial reporting, and tax preparation, allowing you to focus on other aspects of your business.

When hiring a bookkeeper, look for individuals or firms with relevant experience and qualifications. Consider their knowledge of bookkeeping software and their ability to adapt to your business’s specific needs. Additionally, ensure that the bookkeeper you hire understands the legal and regulatory requirements that apply to your industry.

Common bookkeeping mistakes to avoid

While bookkeeping is essential for small businesses, it’s crucial to be aware of common mistakes that can undermine its effectiveness. Some common bookkeeping mistakes to avoid include:

  1. Mixing personal and business finances: Keep your personal and business finances separate to maintain accurate records and simplify tax reporting.
  2. Failing to track all expenses: Every business expense, no matter how small, should be properly recorded. This includes cash purchases and transactions made with personal funds.
  3. Neglecting to reconcile bank statements: Failing to reconcile your bank statements can result in inaccuracies and discrepancies in your financial records.
  4. Forgetting to backup financial data: Regularly backup your financial data to ensure that it is protected in the event of a system failure or data loss.

By being aware of these common mistakes, you can take proactive steps to avoid them and maintain accurate financial records for your small business.

Bookkeeping tips for tax season

Tax season can be a stressful time for small business owners, but with proper bookkeeping, it can be more manageable. Here are some tips to help you navigate tax season smoothly:

  1. Stay organized: Maintain a systematic record of your income and expenses throughout the year, making it easier to compile the necessary documents for tax filing.
  2. Keep track of deductible expenses: Familiarize yourself with the tax deductions available to your business and ensure that you have proper documentation to support these deductions.
  3. Seek professional help if needed: Consider hiring a tax professional or consulting with an accountant to ensure that your tax filings are accurate and compliant with applicable regulations.
  4. File your taxes on time: Be aware of the tax filing deadlines and make sure to submit your tax returns on time to avoid penalties and interest.

By following these tips and maintaining accurate bookkeeping records, you can streamline the tax filing process and minimize stress during tax season.


Effective bookkeeping will make it easier to effectively manage the financial side of your small business. You can start small with a spreadsheet and entering the information manually then, as your business grows, move to accounting software or even hiring a bookkeeper.

With effective bookkeeping you’ll be able to understand the financial side of your business and make informed decisions.

Written by

Anna Thornhill
Anna Thornhill
Anna Thornhill is one of our expert writers. Anna is our specialist editor covering business growth and marketing and makes it her mission to provide small business owners with practical guides that help you step-by-step to grow your business. Anna’s an experienced sales and marketing professional who moved to writing and editorial and helps startups and small business owners with practical advice in growing their business with the latest sales and marketing techniques plus guides to choosing and using sales and marketing technology.

Latest articles

Related articles