Bookkeeping for Small Businesses: 11 Tips for Getting Started

If you need bookkeeping help for your small business, you are in safe hands with SMH group’s team of trusted experts. We have decades of experience in providing help for small businesses, offering support and guidance to help them flourish year-on-year. Here, you’ll learn all about bookkeeping for small businesses, including:

• What is bookkeeping, and how is it different to accounting?
• Why is reliable bookkeeping important for small businesses?
• Can small businesses manage their own bookkeeping?
• 11 must-know tips for successful bookkeeping for small businesses.

You’ll also learn more about SMH Group’s Accounting & Business Advisory and our bookkeeping services for small businesses. Sound good? Then let’s jump right in!

If you are looking for help for your small businesses, you’re in the right place. Getting in touch with our expert business advisors and accountants couldn’t be simpler, book a free no-obligation consultation or email us at info@smh.group.

Bookkeeping vs Accounting: What’s the Difference?

Bookkeeping is recording and tracking a business’s financial transactions. It’s a crucial part of the accounting process and gives businesses extra insight into their incomings and outgoings, providing opportunities to streamline costs and increase profitability. This level of attention to detail is essential when starting a new small business, as it can be easy to lose track of the smaller everyday expenses. If you are looking for further help on the essentials of bookkeeping for small businesses, take a look at our article on bookkeeping essentials.

Now, how does bookkeeping differ from accounting?

Bookkeepers generally focus on administrative tasks. For example, bookkeepers can conduct tasks like data entry, bank reconciliation, invoicing, paying bills, monthly reporting, payroll, and tax preparation. While accountants typically do monthly reporting, payroll, tax preparation, and end-of-year reports to assist with overall business strategy. Essentially, bookkeeping is the initial part of the accounting process, which means the work of a bookkeeper and an accountant can overlap.

Accountants, particularly Accounting & Business Advisory experts, are there to help businesses by interpreting the work of a bookkeeper. You can learn more about accountancy and their work in our blog on what a chartered accountant is.

Do Small Businesses Need Bookkeeping?

Absolutely, bookkeeping can be essential to running a successful business. It can:

• Enable you to determine how much you’re spending and earning. This will let you pinpoint growth opportunities.
• Provide detailed and reliable financial information to assist with future budgeting decisions.
• Help ensure your invoices and payroll are paid on time.
• Keep your financial records up-to-date in the event of a tax audit.
• Empower you to work more efficiently with investors and lenders due to detailed financial records.
• Allow you to complete accurate tax returns.
• Allow you to find incorrect payments or fraud more easily.

What is Included in Bookkeeping for Small Businesses?

Bookkeeping covers the daily monitoring of a business’s financial transactions. As such, it can cover a variety of monitoring and reporting, including:

• Accounts payable: Bookkeeping for small businesses can identify outstanding invoices from suppliers and ensure they’re paid on time.
• Accounts receivable: They can create and send invoices and ensure payment. For small businesses, establishing reliable payments with customers and clients is a crucial component for future growth.
• Bank reconciliation: They can cross-reference your books against bank statements to confirm accuracy.
• Data Entry: Bookkeepers will record day-to-day financial transactions. How they record their transactions can depend on your chosen accounting method (more on this later).
• Monthly financial reports: Day-to-day financial transactions can be summarised in a monthly report, enabling small businesses to understand their performance and identify growth opportunities.
• Payroll: Some bookkeepers can manage payroll to pay staff and HMRC.
• Tax filing: Some bookkeepers can claim back taxes for your businesses and prepare tax returns.

Small business financial activity is usually recorded in three main financial records, otherwise known as ‘books’. This includes:

1. Cash book: which records your incoming and outgoing cash flow.
2. Sales invoices: These show what you’ve sold through paid and unpaid invoices.
3. Purchase invoices: PI show what you’ve bought.

Can Small Business Manage Their Own Bookkeeping?

As a business owner, keeping costs down is vital for enhancing profitability. And you may be tempted to keep your bookkeeping in-house to help cut costs instead of outsourcing. But is this something you can do? Bookkeeping can be a time-consuming and difficult process. But it is possible to do it independently, especially if you’re a small business with a limited number of complex financial transactions.

However, you’ll need to dedicate time to learning how to book keep and may need to pay for software. Although it’s possible to do bookkeeping on your own, most businesses choose to outsource their bookkeeping. This is especially true for small businesses that may not have the time or resources to manage their books accurately and comprehensively. Outsourcing your bookkeeping to a company like SMH Group will enable you to focus on the day-to-day running of your company. A professional bookkeeper and accountant can record your data, interpret it, and provide suggestions had to improve your business’s performance.

Need Bookkeeping Help for Your Small Business? Here are 10 Tips To Get Started

Whether you intend to go solo or are looking to outsource your bookkeeping, the next 10 tips are essential for good small-business bookkeeping. Let’s get into it:

1) Record Every Financial Transaction

Your first step in starting bookkeeping as a small business is simple – record everything! Use your books to track every incoming and outgoing, with details on the transaction and the date it occurred so you can easily find them later. How you record these transactions will depend on the type of bookkeeping you use and the accounting method you choose.

2) Choose Your Bookkeeping Type: Single-Entry vs Double-Entry

There are two main bookkeeping types for small businesses: single-entry bookkeeping and double-entry bookkeeping. Single-entry is the most basic form of bookkeeping and records all financial transactions in one row. It’s best used for small businesses with fewer complex business transactions and effectively tracks cash, taxable income, and tax-deductible expenses. These transactions are usually recorded in a cash book.

Double-entry bookkeeping is slightly more complex. Here, every transaction is recorded at least twice. This reflects the complexity of business transactions, as each transaction can have a knock-on effect and impact different aspects of the business. For instance, if you make a sale, your stock will be lowered, and a tax liability on the VAT you collected will be created. Double-entry bookkeeping is better for bigger businesses with more complex transactions. It’s also the preferred choice for investors as double-entry bookkeeping provides a much more detailed transactions list.

3) Choose Your Accounting Method: Accrual vs Cash

Your next step is choosing your accounting method. Cash accounting is based on cash flow and records transactions from when cash changes hands. Accrual accounting records transactions when they occur, not when cash changes hands. This is an important distinction for companies that offer credit, as you may get paid long after a deal is made. Hence, cash accounting reduces the risk of paying tax on money you haven’t received.

4) Conduct Bank Reconciliation

Having an accurate record of all financial transactions is one of the core responsibilities of a small business bookkeeper. But how can you ensure your data is correct? One of the best methods is bank reconciliation. Here, you will compare your books to your bank statement to see if all the incomings and outgoings match up. This is a great way of spotting errors and will allow you to quickly solve mistakes before they become a headache later down the line.

5) Monitor Cash Flow And Keep an Eye on Expenses

A good bookkeeper will understand a business’s cash flow and know exactly where the incomings and outgoings occur. And there are two big benefits of doing this: Firstly, understanding what money is available will dictate the stock you can buy. Secondly, tracking your outgoings can massively reduce your overhead by claiming tax back from business expenses. The latter case is an excellent example of why well-documented books are important, as you’ll need receipts to back up your claims from HMRC. Remember also that cash flow goes beyond the money in your business account. You should also think about any outstanding invoices and the VAT you owe.

6) Choose the Right Bookkeeping Software for Small Businesses 

If you want to conduct your own bookkeeping or want to employ the services of an expert bookkeeper, having the right bookkeeping software can dramatically accelerate the process and minimise the chance of errors. Here are three ways software can help your small business bookkeeping.

• A good software can automatically pay your bills.
• It can alert you when invoices are paid and send reminders to those who owe money.
• Some bookkeeping software lets you instantly see your cash flow – even from your mobile phone.

But the question is: What is the right accounting software? There are a few features to keep an eye out for when shopping around for online software. This includes automatic reconciliation – software that connects with banks to reconcile transactions against your records automatically – and secure cloud storage to keep your data safe and accessible.

7) Properly Order Your Bank Statements and Invoice for Ease of Use

Properly organised books can save you hours of time and money. By organising your bank statements and invoices intelligently, such as in date order, you can prevent time wasted finding your documents and reduce the chances documents are lost and filed late – leading to fines. Purchase invoices will benefit from being stored alphabetically by the supplier name and be separated by paid and unpaid. Meanwhile, sales invoices can be put in the order they should be paid. This will enable you to identify invoices near their deadline and allow you to chase payments.

8) Pay Tax 

The world of taxation can be complicated. With several potential taxes, you need to pay, like income tax & national insurance, corporation tax, and Value-Added Tax – it can be easy to get lost and lose track of it all. A good bookkeeper and accountant will know exactly what taxes apply to your company and how and when to submit tax returns like VAT returns. It can get more complex when considering the new HMRC scheme Making Tax Digital, which introduced new requirements for keeping your accounting records digitally accessible. While it’s currently in place for VAT, there are further plans for making income tax self-assessments digital in April 2024.

9) Generate Monthly Small Business Financial Reports

Reporting can give you a detailed insight into your company’s performance and will enable you to adapt to downturns and avoid nasty shocks. There are two main types of reports you’ll want to prepare, these include:

1. The balance sheet measures your company’s value by subtracting what your company owes (liabilities) from what your company owns (assets).
2. The Profit and Loss Statement measures your profitability by subtracting your expenses (the money spent by your business) from your revenue (the money earned).

10) Look for Help For Small Businesses

Bookkeeping can be time-consuming. And if your company is growing and ramping up the number of transactions, it may be best to outsource your bookkeeping. Companies like SMH Group have helped hundreds of businesses manage their books better for over 25 years.

We can help you review and improve your existing accounts systems or even design and implement a new one to handle your needs better. Contact us today to learn more about how we can benefit your business.

Our clients benefit from a 140-strong team of industry experts to provide industry-leading help for small businesses. We are able to support you with all aspects of accounting, bookkeeping, financial planning and business development, to ensure you are able to reach your goals with confidence.

Getting in touch with our expert business advisors and accountants couldn’t be simpler, book a free no-obligation consultation or email us at info@smh.group.