Book Keeping for a Small Business: Getting Started

published on 03 March 2024

Starting bookkeeping for your small business might seem daunting, but it's crucial for financial health and growth. Here's a straightforward guide to get you on the right track:

  • Understand the basics: Bookkeeping involves tracking every penny that comes in and out of your business, helping you make informed decisions.
  • Keep business and personal expenses separate: This simplifies tax filing and gives you a clear picture of your business finances.
  • Choose a bookkeeping system: Decide between single-entry and double-entry systems, with double-entry providing a more detailed financial overview.
  • Select an accounting method: Cash basis and accrual basis are the two main methods, each with its own advantages.
  • Use the right tools: Consider spreadsheets or accounting software like QuickBooks, Xero, or FreshBooks based on your business needs.
  • Stay organized and consistent: Regularly record transactions, reconcile bank statements, and prepare financial statements to monitor your business's financial health.

By following these steps and maintaining a routine, you can manage your small business's finances effectively and set a strong foundation for growth.

What is Bookkeeping?

Bookkeeping is all about keeping track of every penny that comes into and goes out of your business. This includes:

  • The money you make (revenue/income)
  • The money you spend (expenses/bills)
  • Details about what your business owns and owes

It's a system that helps you watch your cash flow and figure out if your business is doing well financially.

Bookkeeping is not the same as accounting because:

  • Bookkeeping is about recording transactions every day, while accounting takes that information and makes sense of it for reports and analysis.
  • Bookkeepers do the day-to-day work of keeping track of money. Accountants use this information to make financial statements.
  • You need accurate bookkeeping to get useful information from accounting.

For small businesses, good bookkeeping is important for a few reasons:

  • It helps you make smart decisions based on how much money is coming in and going out.
  • It makes doing your taxes easier and helps you avoid late fees.
  • It's necessary if you want to get a loan or investment because lenders and investors will want to see your financial records.

Why Bookkeeping Matters for Small Businesses

Good bookkeeping is really helpful for small businesses:

1. Makes tax time easier

  • If your financial records are organized, doing your business taxes is much simpler.
  • You can easily keep track of how much money you made, what you spent, and what you can deduct to file your taxes correctly.

2. Helps you make better decisions

  • Knowing exactly how much money you're making and spending can help you make decisions to improve your business.
  • You can spot problems early and fix them.

3. Helps you get money when you need it

  • If you're looking for a loan or investment, having clear and complete financial records shows that your business is a safe bet.

4. Keeps things smooth during audits

  • If the tax office ever checks your business, having your records in order will help prove your tax return is right.
  • This can help avoid extra taxes and penalties if you catch and fix mistakes early.

In short, keeping up with bookkeeping helps keep your business on track and can save you a lot of trouble later on. It's worth the effort to keep everything in order.

Getting Started with Bookkeeping for Your Small Business

Step 1: Separate Your Business and Personal Expenses

It's super important to keep your business money and personal money apart. This helps you avoid tax problems and makes your records clear. Here's what you can do:

  • Open a bank account just for your business. Don't mix in personal money.
  • Get a business credit card for buying things your business needs.
  • Write down every single business purchase and keep all the receipts.
  • Use bookkeeping software to help sort out what's a business expense and what's not.
  • Talk to a tax advisor about what you can write off if you use something for both personal and business reasons.

Keeping things separate makes everything about handling money much easier and helps you see if your business is making money.

Step 2: Choose a Bookkeeping System

You can pick from two main ways to keep track of your money:

  • Single-entry is pretty straightforward, recording just what comes in and what goes out. But it might miss some details.
  • Double-entry keeps an eye on more, like what you owe and what's owed to you, and checks that everything adds up. It's better for catching mistakes.

Double-entry bookkeeping is usually the way to go because it helps make sure you don't miss anything important. Plus, it gives you a clearer picture of your business's money.

Look for small-business accounting software that's easy to use and has double-entry features. This type of software does a lot of the heavy lifting for you.

Step 3: Choose an Accounting Method

Decide on how you'll record your money:

  • Cash basis: You write things down when money actually changes hands. It's simpler and good for seeing cash flow.
  • Accrual basis: You write down earnings when you make a sale and expenses when you get a bill, even if no money has moved yet. It gives a more complete view of your finances.

Cash basis is simpler, but accrual accounting might be better if you have inventory or deal with credit. It's a good idea to talk to an accountant to figure out what's best for your business. Most bookkeeping software lets you use either method.

Setting Up Your Bookkeeping System

Selecting the Right Tools

When you're getting your bookkeeping system ready, you have to pick the tools you'll use to keep track of your money. Here are some choices:

  • Spreadsheets: Excel or Google Sheets are great for starting out. You can type in what you earn, what you spend, and what you own. But, if your business gets bigger, this might get too tricky.
  • Accounting software: Tools like QuickBooks, Xero, or FreshBooks make things easier. They can automatically handle tasks like sending bills, keeping track of expenses, making reports, and connecting to your bank. These tools are made with small businesses in mind.
  • If you're not sure what software to pick, check out BizBot's software directory. It has suggestions based on what your business needs and how much you want to spend. Look at the reviews to find a good match.
  • Outsourcing: If you'd rather not deal with bookkeeping yourself, you can always hire a professional. This could be an accountant, a bookkeeper, or a company that specializes in this. They take care of your finances, so you can focus on your business.

Organizing Your Accounts

A big part of setting up your bookkeeping is making a chart of accounts. This is just a list of categories for all your transactions. These categories include:

  • Assets - Stuff your business owns, like cash, money people owe you, things you're going to sell, and equipment.

  • Liabilities - What your business owes to others, like bills, loans, and mortgages.

  • Equity - The money you've put into your business, like earnings you've kept in the business and money from investors.

  • Revenue - The money you make from selling things or services.

  • Expenses - What it costs to run your business, like rent, electricity, paying employees, and buying supplies.

Having your accounts organized makes it quicker to record transactions and helps you make sense of your finances later when you're looking at how your business is doing.

Daily Bookkeeping Tasks

Recording Transactions

It's super important to keep track of every penny that comes into and goes out of your business every day. Here's how to do it right:

  • Write down sales as soon as you get paid. Include how much, when, who paid, and what they bought.
  • When you buy something for your business, note it down as soon as you pay. Write down how much it cost, who you paid, and what you bought.
  • Use simple bookkeeping software or a basic spreadsheet to keep everything neat and easy to find.
  • Add details like invoice numbers or check numbers to your records. This helps you find things later if you need to.
  • Take pictures of your receipts or scan them, and keep them with your records as proof.
  • Be consistent with how you enter information. For example, always write vendor names the same way.

Keeping your records updated and accurate helps you understand your business better. It makes things like checking your accounts, preparing financial reports, doing taxes, and seeing if you're making money much easier.

Reconciling Bank Statements

Reconciling means checking that your bookkeeping matches up with your bank and credit card statements. Do this every month to catch any mistakes and keep your numbers right. Here's how:

  • Get your bank/credit card statements and your bookkeeping records for the same time.
  • Go through and match each transaction on both. Mark the ones that match.
  • If something doesn't match, figure out why and fix it in your books. Common issues include:
    • Transactions you forgot to write down
    • Entering something twice by mistake
    • Writing down the wrong amount
  • Make sure the final numbers are the same after you've fixed any problems.
  • Keep the checked statements with your bookkeeping stuff.

Doing this every month stops small errors from becoming big problems. It also helps you spot any weird charges so you can deal with them quickly. Plus, it makes tax time a lot less stressful. Regularly checking your accounts is key to keeping your business's money on track.

Periodic Bookkeeping Responsibilities

Preparing Financial Statements

As a small business owner, you need to regularly check your business's financial health by preparing some key reports. Here are the three main ones you should know about:

Balance Sheet

Think of a balance sheet as a quick photo of what your business has (like cash and things you can sell) and what it owes (like loans or bills to pay) at a certain time. It tells you if your business is doing well overall.

To make a balance sheet:

  • Write down everything your business owns and how much it's worth
  • Write down everything your business owes to others
  • Subtract what you owe from what you own to see your business's overall value

Income Statement

An income statement is like a summary of the money coming in (from sales or services) and going out (for things like salaries and rent) over a certain period. It shows if you made a profit or not.

To make an income statement:

  • List all the money you made
  • List all your costs
  • Subtract the costs from the money made to see if you made a profit

Cash Flow Statement

A cash flow statement tracks the cash coming in and going out of your business. It helps you see if you have enough cash to pay your bills.

To make a cash flow statement:

  • Write down all the cash coming in
  • Write down all the cash going out
  • Subtract the cash going out from the cash coming in to see if your cash amount has gone up or down

Reviewing Financial Health

It's smart to look over these reports often (like every month) to see how your business is doing. This helps you:

  • Check if you're making money and managing it well
  • Spot problems early so you can fix them
  • Find ways to make your business better
  • Make smart choices based on your business's money situation

Look at these reports side by side over time to see if things are getting better. Chat with your accountant now and then to dive deeper into these numbers. Fixing issues and grabbing new chances shown by your reports is key to keeping your business on the right track.


Keeping Your Bookkeeping in Check

Making Sure Your Records are Safe and Easy to Find

It's super important to keep all your financial paperwork and digital files organized and safe. Here are some straightforward steps:

  • Put paper documents like bills and receipts in folders or binders, sorted by year and month. Store them in a place where they won't get damaged.
  • Regularly save digital files to an external hard drive and online storage so you have backups.
  • Protect your files with passwords and encryption. Only let your bookkeeper and accountant access them.
  • If someone who had access to your finances leaves your company, change your passwords and make sure they can't get in.
  • You should keep your financial records for about 5-7 years, as the law says.
  • Make sure at least one other person you trust knows how to get to your records in case the main person in charge can't.

Keeping everything organized and safe means you can find what you need quickly and you're ready if you ever need to show your records to someone official.

Setting Up a Routine for Your Bookkeeping

Staying on top of your bookkeeping means doing certain tasks regularly. Here's a simple plan:

  • Every day:
    • Write down any money that comes in or goes out.
    • Make sure your digital records are backed up.
  • Every week:
    • Check how much money you've made and spent so far, and compare it to what you thought you would.
    • Make sure your credit card records match up.
  • Every month:
    • Make sure your bank records match your bookkeeping.
    • Look over what your customers owe you and remind them if they haven't paid.
    • Pay your bills and any invoices you have.
    • Take a look at your financial reports.
  • Every three months:
    • Make sure you've set aside the right amount for sales tax.
    • Check on any tax payments you need to make.
  • Every year:
    • Review your insurance to make sure it's still good.
    • Do your taxes and end-of-year reports.
    • Think about your financial goals for the next year.

Making bookkeeping a regular part of your routine helps you catch any problems early. It's a good idea to review your schedule now and then to make sure it still works for your business. Keeping a consistent schedule is the best way to keep your finances in good shape.


Keeping your business's books in order is super important for any small business owner. It might seem like a lot of work at first, but taking the time to track your money carefully will really help you in the long run. Here's what you should remember:

  • Keep your personal and business money separate. This makes it easier to handle taxes and keep track of your spending. Open a business bank account and get a business credit card.
  • Use double-entry bookkeeping for recording transactions. It helps catch mistakes because it tracks more about your money.
  • Decide between using cash basis or accrual accounting based on what fits your business best. Cash basis is simpler, but accrual accounting keeps track of money you owe or are owed.
  • Try using bookkeeping software made for small businesses. These tools can do a lot of the work for you and are pretty easy to use.
  • Make it a habit to record transactions every day. Check your accounts and look over your financial reports every month. Keeping up with this routine will keep your books tidy.
  • Keep your financial records safe and organized. You need to have them for about 5-7 years, so label everything clearly and store digital files securely.
  • If you're unsure or want to focus on other parts of your business, you can always ask for help from professionals like CPAs or bookkeepers.

Bookkeeping doesn't have to be a big scary thing. Start with the basics: tracking what money comes in and what goes out. Build your process from there. Keeping accurate records helps you see how your business is doing and can save you money on accounting costs later. Just spend a little time each week on it, and it'll make a big difference for your business.

FAQs on Small Business Bookkeeping

Here are some common questions and straightforward answers about keeping track of your small business's money:

What are the most common bookkeeping mistakes small businesses make?

Some big mistakes include:

  • Mixing personal and business money
  • Not keeping detailed records or losing receipts
  • Not checking your books against your bank statements often
  • Choosing the wrong way to record your money (cash vs. accrual)
  • Trying to handle taxes all by yourself without an accountant

To steer clear of these problems, always keep your business and personal expenses separate. Make sure to keep a detailed record of all money coming in and going out, and regularly check your records against your bank statements. It's also wise to consult with an accountant to pick the best way to record your finances and to help with taxes.

How often should I be doing bookkeeping tasks?

Here's a simple plan to keep your books in order:

  • Daily: Write down any money moving in or out. Make sure to back up your digital records.
  • Weekly: Look over what you've earned and spent, and check it against your plans. Make sure your credit card records are correct.
  • Monthly: Match your bank statements with your bookkeeping, remind customers about unpaid invoices, pay your bills, and review your financial reports.
  • Quarterly: Make sure you've set aside enough for sales tax. Check if you need to make any tax payments.
  • Yearly: Review your insurance, file your taxes, and plan your financial goals for the next year.

Sticking to this schedule will help you catch and fix any issues early on.

What bookkeeping tools does BizBot recommend?

BizBot suggests looking into these tools for small business owners:

  • FreshBooks: Great for service businesses, easy to use
  • Wave: Free software for simple bookkeeping
  • Xero: Good for working with accountants, cloud-based
  • QuickBooks: Lots of features and can work with other apps, a popular choice

Check out their bookkeeping software directory for detailed reviews and to compare different options.

Should I hire a bookkeeper or do it myself?

If keeping the books isn't your thing or you're too busy, hiring a bookkeeper might be a good idea. They can:

  • Make sure your records are accurate
  • Help you follow tax and reporting rules
  • Save you time so you can focus on your business
  • Spot problems early

Look for someone with the right experience and check their fees to make sure they're a good fit for your business.

What bookkeeping skills should a small business owner have?

Even if you hire someone to help, it's good to know the basics, like:

  • Keeping business and personal money separate
  • How to use bookkeeping software
  • What a chart of accounts is
  • How to record transactions
  • Checking your books against bank statements
  • How to make financial statements
  • Keeping a regular bookkeeping schedule

Understanding these basics will help you make better decisions based on your business's finances.

How do I do the bookkeeping for a small company?

Here's a straightforward way to handle your small business's bookkeeping in five steps:

  • Collect all your financial papers like bank statements, bills, and sales receipts.
  • Sort your money coming in and going out into different groups, such as rent, utilities, and payroll.
  • Make sure your book records match your bank statements to spot any mistakes.
  • Create key reports like profit and loss statements and balance sheets to see how your business is doing financially.
  • Use these reports to make smart decisions about your money.

Staying organized and regularly checking your financial health is crucial. Small-business accounting software can make this much easier.

How do I start a basic bookkeeping business?

To start your own bookkeeping business, follow these nine steps:

  1. Decide who you want to work with, like small businesses or freelancers.

  2. Write a plan that includes how you'll find customers and run your business.

  3. Get a bookkeeping certification from a recognized program.

  4. Register your business officially and get insurance.

  5. Pick the bookkeeping software you'll use, such as QuickBooks or Xero.

  6. Set up your workspace and create a website and business email.

  7. Figure out your prices by looking at what others charge in your area.

  8. Get the word out about your services through networking and online advertising to find clients.

How to do accounting books when first starting business?

Here are five initial steps for managing your business's books:

  • Open a separate bank account for your business to keep finances clear.
  • Keep all your purchase receipts and sales invoices organized by date.
  • Use accounting software to record your expenses and sales.
  • Keep track of the payments you receive from customers.
  • Regularly compare your book records to your bank statements for accuracy.

Starting off with good habits like these makes handling taxes much simpler later on.

How do I set up manual bookkeeping for my small business?

Here's how to do manual bookkeeping in seven steps:

  • Decide if you'll use the cash or accrual accounting method. Cash is simpler for most.
  • Choose how you'll record transactions, like using software or a spreadsheet.
  • Create a chart of accounts to organize your transactions.
  • Open a business bank account and credit card to keep things separate.
  • Decide on your payment terms for how you'll get paid by customers.
  • Record all your business expenses as they happen.
  • Plan a regular schedule for your bookkeeping tasks and set reminders.

The key to manual bookkeeping is staying organized and consistent.

Related posts

Read more