Knowing the bookkeeping basics for entrepreneurs is an essential part of running a successful business. It’s the only way to keep track of your income, expenses, and profits, as well as make sure that all taxes are paid on time. While bookkeeping may seem intimidating to those who are unfamiliar with it, having a basic understanding of the fundamentals can help make the process much easier. In this blog post, we will explore seven should know bookkeeping basics for entrepreneurs. From understanding financial statements to taking advantage of technology, these tips will help you get started and understand the importance of keeping good records.
1. Separate Personal and Business Expenses
One of the most important bookkeeping basics for entrepreneurs is to keep personal and business expenses separate. This can be done by opening a business bank account and using it for all business transactions. Then, any personal expenses should be paid for with a separate personal account.
By keeping personal and business expenses separate, it will be much easier to track your spending and stay organized. Plus, come tax time, you’ll be glad you have all of your expenses sorted out!
2. Record Everything
As an entrepreneur, you need to keep track of everything in your business. This includes money coming in and going out, as well as inventory and assets. You also need to track employee hours, customer information, and other important data.
There are many different ways to keep track of this information. You can use paper records, spreadsheets, or specialized software. No matter what method you use, it’s important to be consistent and accurate.
Paper records can be kept in a simple notebook or ledger. Spreadsheets can be created in programs like Microsoft Excel or Google Sheets. There are also many different types of software available specifically for bookkeeping.
Whichever method you choose, make sure you record everything that is important to your business. This will help you stay organized and make better decisions about your business.
3. Choose a Bookkeeping Method
There are three main methods of bookkeeping: single-entry, double-entry, and triple-entry. Single-entry bookkeeping is the simplest and most common method used by small businesses. It involves recording transactions in a journal and then posting them to a ledger. Double-entry bookkeeping is more complex, and it involves recording transactions in two journals (a debit journal and a credit journal) before posting them to ledgers. Triple-entry bookkeeping is the most complex method, and it involves recording transactions in three journals (a debit journal, a credit journal, and a third journal) before posting them to ledgers.
Which bookkeeping method you choose will depend on the size and complexity of your business, as well as your personal preferences. If you’re just starting out, single-entry bookkeeping may be all you need. As your business grows, you may find that double- or triple-entry bookkeeping is necessary to keep track of all your transactions. Whichever method you choose, make sure you keep accurate records so you can make sound financial decisions for your business.
4. Decide on Cash or Accrual Accounting
There are two types of accounting methods used to record and report business transactions: cash and accrual. Cash accounting recognizes revenue and expenses when cash is exchanged. Accrual accounting recognizes revenue and expenses when they are incurred, regardless of when the cash is exchanged.
So, which type of accounting should your business use? The answer depends on a variety of factors, including the size of your business, your industry, and your preferences.
If you’re just starting out, or if you have a very small business, cash accounting may be the best option for you. It’s simpler than accrual accounting, and it will give you a better idea of how much cash you have on hand at any given time.
If you have a larger business, or if you want to get a better sense of your company’s overall financial health, accrual accounting may be a better choice. With accrual accounting, you’ll get a more accurate picture of your company’s income and expenses.
5. Categorize Transactions
As an entrepreneur, it’s important to keep track of all your income and expenses. One way to do this is by categorizing transactions. This will help you see where your money is going and make better financial decisions for your business.
There are a few different ways you can categorize transactions. One method is by type of income or expense. For example, you could have categories for sales, marketing, salaries, rent, utilities, and so on. Another way to categorize transactions is by time period. This could be monthly, quarterly, or annually.
Whatever method you choose, make sure to be consistent with it. This will make it easier to track your finances over time and see where your money is going.
6. Update Your Books Regularly
As an entrepreneur, it’s important to keep your books up to date. This means regularly updating your records of income and expenses. Doing so will help you stay on top of your finances and make informed decisions about your business.
There are a few different ways you can update your books. One way is to use accounting software. This can be a great option if you’re comfortable using computers and want to have everything in one place. Another way is to hire an accountant or bookkeeper to do it for you. This can be a good option if you’re not comfortable using computers or don’t have the time to do it yourself.
Whatever method you choose, make sure you update your books regularly. Doing so will help you stay on top of your finances and make informed decisions about your business.
7. Review Your Books Regularly
Just like you review your bank statements and financial reports, you should also review your business’s books on a regular basis. This will help you catch any errors or discrepancies and keep track of your business’s financial health.
If you don’t have the time or expertise to review your books yourself, consider hiring a bookkeeper or accountant to do it for you. They can also help you develop a system for tracking expenses and income, so you can stay on top of your finances and make informed decisions about where to invest your resources.
The Benefits of Bookkeeping
There are many benefits of knowing bookkeeping basics for entrepreneurs. Good bookkeeping can help Entrepreneurs save time and money, as well as avoid costly mistakes.
Bookkeeping can help Entrepreneurs keep track of their finances and make better decisions about where to allocate their resources. It can also help them monitor their progress and identify areas where they need to improve. Additionally, good bookkeeping can help businesses keep track of employee performance and expenses.
Bookkeeping is also beneficial for tax purposes. When Entrepreneurs have accurate records of their income and expenses, they can more easily prepare their taxes and ensure that they are paying the correct amount of taxes. This can save them a significant amount of money over time.
Overall, bookkeeping offers numerous advantages and benefits that make it an essential part of running a successful business.
What Is EcomBalance?
EcomBalance is a monthly bookkeeping service specialized for eCommerce companies selling on Amazon, Shopify, Ebay, Etsy, WooCommerce, & other eCommerce channels.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
- Monthly Finance Meeting Agenda
- 9 Steps to Master Your Ecommerce Bookkeeping Checklist
- The Ultimate Guide on Finding an Ecommerce Virtual Bookkeeping Service
- What Is a Profit and Loss Statement?
- How to Read & Interpret a Cash Flow Statement
- How to Read a Balance Sheet & Truly Understand It
Final Thoughts on Bookkeeping Basics
As an entrepreneur, it’s important to have a handle on your finances and one way to do that is to understand bookkeeping basics. This doesn’t mean you need to be an expert in accounting, but you should have a general understanding of the concepts. Here are a few final thoughts on bookkeeping basics:
- Keep good records from the start: This will make your life much easier down the line when it comes time to do your taxes or reconcile your accounts.
- Understand the basics of debits and credits: This is the foundation of bookkeeping and will help you understand how transactions are recorded in your books.
- Use accounting software: This can save you a lot of time and headaches when it comes to tracking your finances. There are many different options available, so find one that fits your needs.
- Hire a professional: If you’re not comfortable handling your own finances, there’s no shame in hiring someone to help you out. A good accountant can save you money and help keep your books in order.
Bookkeeping basics for entrepreneurs are relatively straightforward, but it can be overwhelming if you don’t know where to start. By understanding the basics and taking advantage of accounting software or a professional accountant, you’ll be well on your way to mastering this important skill.