Bookkeeping Basics for Small Business Owners

Bookkeeping Basics for Small Business Owners


if you’re a small business owner and you
want to do your own bookkeeping but don’t know how this video is for you
consider this your bookkeeping 101 crash course here at bench we’ve done the
books for thousands of small businesses bookkeeping may not be the most
exciting thing ever but we’ve got it down to the science in
this video we’ll teach you what bookkeeping is why bookkeeping really
matters and the seven steps to doing your own bookkeeping bookkeeping is
defined as the process of tracking all of your company’s financial transactions
so you can see exactly where your business is spending money where your
revenue is coming from and which tax deductions you’ll be able to claim
that’s a lot of words but why does bookkeeping matter for your small
business number one bookkeeping matters because it helps you catch more
tax deductions when you record and categorize every transaction in your
business you’ll be able to see which expenses are tax deductible so that
nothing falls through the cracks without year-round bookkeeping you’ll forget
about one-off deductions like lunch with a client eight months ago that you could
have deducted even with the best of intentions deductions will always all
through the cracks at tax time unless you have bookkeeping in place number two
bookkeeping matters because it can help you get a business loan if you’re
applying for a small business loan banks are going to need to see financial
statements and I don’t just mean the type that you can download from your
online banking you’re going to need to have something that shows your expenses
and revenue otherwise known as an income statement this is something you’re going
to be able to get through bookkeeping number three bookkeeping matters because
it can help you catch financial mistakes when your bookkeeping you’re keeping a
close eye on the transactions in your business which means you’ll be able to
catch things like Bank errors invoicing mistakes like paying somebody twice and
sneaky subscription fees for services that you forgot to cancel number four
bookkeeping matters because it gives you a clear picture of where your money is
going when you have bookkeeping in place you’ll be able to keep track of your
expenses so you can budget better you’ll also be able to understand your cash
flow so you can see what’s an expense versus a payment to a loan or a credit
card you’ll also be able to track how your businesses grow
and improving over time and what months are busy and slow this will help you
plan for the future don’t worry about taking notes everything we’re about to
say is in our guide bookkeeping basics for entrepreneurs you’ll find the link
in the description below now the first step to doing your own bookkeeping is
separating your business and personal expenses you’ll want to make sure that
your business and personal transactions are not intertwined so it’s clear to the
IRS what your business is earning spending and then what your bottom line
net profit is this is especially important for C corporations to have
separate bank accounts for business and personal finances see Corpse open
themselves up to legal problems when their finances aren’t separate from
personal transactions the second step is to choose between single entry or double
entry accounting double entry is a system of accounting that tracks where
your money comes from and where it’s going to essentially you record every
transaction twice taking assets from somewhere called a credit and putting it
somewhere else called a debit your debits and credits should always equal
each other that’s how you know that your books are balanced for example say you
buy a new laptop for your business and it costs $1000 you’d subtract $1000 in
cash from your credit account and add $1,000 in assets to your debit account
you may have lost $1,000 in cash but you gained $1000 in the form of a new asset
double entry accounting is kind of like double checking your homework and helps
you create financial statements which you’ll need to make smart financial
decisions so what is a single entry method it’s essentially just recording
your transactions once as they happen it’s less robust but if your business is
a simple sole proprietorship with no inventory and no employees you can
probably use the single entry method if your business is any more complex than
that your accountant will probably recommend the double entry method the
third step is choosing between the cash versus accrual method of accounting on a
cash basis you only recognize revenue when you receive it for example when you
deposit the check into your account on an accrual basis you recognize revenue
when it’s earned for example once you complete a project and write the invoice
if you’re a small business or just getting started you can probably use the
cash method it’s easy to switch from cash to accrual if you need to if your
business is more complex for example if your business more than five million per
year in revenue or if you manage large assets or investments you’ll probably
need to use the accrual method either way you should talk to your accountant
to figure out which method will be best for your business step four is to choose
a bookkeeping system your options are to do it manually using something like
Excel or just paper or use an accounting software if you do it in Excel you can
use something like our free income statement template for a simple
bookkeeping setup all you have to do is enter each transaction as it happens if
your bookkeeping means are straightforward this is the easiest
cheapest way to go you can download this excel template by clicking the link in
the description below if you choose to use accounting software there are a few
options for small businesses such as QuickBooks
Xero or wait you’ll pay a monthly fee for the software which you can use to
produce simple financial reports keep in mind though you may need to have an
accountants help to learn how to properly use the software step 5 is to
categorize your transactions categories are essentially classifications for your
transactions to understand what you’re spending on these types of categories
can help you understand what your tax deductions are not all transactions are
equally tax deductible so you’ll want to know what you’re spending on office
supplies versus what you’re spending on meals for example if you buy a box and
pens for the office you’ll categorize it as office supplies at the end of the
year you’ll be able to see the total amount you spent on office supplies and
you’ll be able to deduct that cost on your taxes step 6 is to organize and
store your documents you need to keep records for your bookkeeping but there’s
a bit more to it than just storing all of your receipts in a shoebox there are
two important rules for your record-keeping rule one if the expense
is over $75 you should keep a record to prove the expense rule two you should
keep every receipt and financial record for three years as for actually keeping
the records we recommend storing them digitally the IRS is totally fine with
that and it’s an easy away for you you won’t need the receipts
to actually file your taxes but you will need them if you get audited some tools
you can use to keep your records digitally include receipt banks Evernote
and shoebox finally the last step is to make it a
habit what keeping isn’t the most exciting thing but if you do it
consistently you’ll have smart financial insight into your business every month
of the year and you’ll save yourself a lot of time and headaches come tax
season at minimum we recommend entering in all your transactions at least once a
month block out a recurring time in your
calendar and do it somewhere fun like a coffee shop or do something relaxing
like putting on netflix while you do the work the more automatic your bookkeeping
habit the easier your tax season will be nobody likes a stressful bookkeeping
binge now should you do your own bookkeeping or hire someone else to do
it for you doing your own books is free that’s the
biggest draw but it can be complicated time-consuming and can take you away
from running your business if you’re interested in doing your own bookkeeping
click the link in the description for a free income statement template created
by our expert in-house bookkeepers here at bench if you decide to hire someone
to do your bookkeeping it helps save you time gives you confidence your books are
being done properly and makes tax time a whole lot easier if you aren’t sure who
to hire check out bench or the largest bookkeeping service in north america and
we’d love to do your books for you and that’s it from us here at bench good
luck on your entrepreneurial journey and happy bookkeeping

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About the Author: Oren Garnes

51 Comments

  1. I am busy preparing to file and was one of those people that didn't pay attention to the books. I have literally pulled out every hair from my head trying to figure this book keeping thing out. Benchmark's income statement gave me a head start and their blog posts helped me wrap my head around some of the accounting terms. Now I know exactly what to do and habits to build around my book keeping.

  2. That statement of profit and loss at 5:09 is incorrect. I practice in bookkeeping and accounting; the interest received and other sales revenue would not be in sales revenue. That would be under sundry income. Cost of sales isn’t clear either, as you have to have opening inventory, purchases and closing inventory.

  3. Hello. My name is Rickey. I do have my own Bookkeeping and Accounting business. It is a small business as well as a home based business. I know some things about Bookkeeping and Accounting; but, I would like to learn how to operate my business better, so I can get more clients and grow my business. I have had a few clients before; but, I have had no clients recently. That is why I would like to know how to operate my business better. If possible, I would like to hear from you concerning this, and hope you will keep up the good work.

  4. After more than 20 years of experience I have one important piece of advice. Stay away from Quickbooks…both desktop and cloud versions. You will come to regret using it. If your needs are simple you can use "Wave" for free. If you want something with more features you can use "Gnucash" for free. Just download it onto a CD and you are all set. If you want to know WHY quickbooks is so bad then type "why quickbooks is not a business tool" in your search engine.

  5. Hey fellow entrepreneurs!
    I would really appreciate you taking 3 min this survey! As we all know gathering information and research is the first step in starting your business 🙂 Thank you!
    https://www.surveymonkey.com/r/BHRRZTZ

  6. This is video is great. I tried to download that two files but it connected to an unsecured website. I trusted and applied for that . I need your explanation, please.!!!!!

  7. Not a small business, but I should get into monthly bookkeeping anyway. We have a lot of random stuff we buy and store, so it'll pay to know what stuff we have so we can use it and not buy things redundantly.

  8. i’m confused by the debit / credit comment at around 3:25: ‘subtracting from a credit account and adding to a debit account.’ assuming you paid cash for the computer, you don’t credit $1,000 to the cash account and debit $1,000 to the equipment account?

  9. I noticed you mentioned that you want to keep your personal and business expenses separate. However, what if you’re using your personal money in the beginning to start your business?

  10. Hello I'm studying basic accounts. I need someone to help me on the suspense if anyone is interested please contact me here and we can talk on what's up. Thank you

  11. https://flowlog.net/ is a good option for novice bookkeepers who are looking for a simple accounting solution for small business and personal use.

  12. Great information! As an entrepreneur, I like earning the money, making the invoice and deposits – I don't so much like the rest of it but realize the importance of the task. I highly recommend utilizing a bookkeeping service as they are normally very affordable! It will free you (the owner) up to do what you do best….. and the bookkeeper can do what they do best!
    This is a great overview video! Well done!

  13. This lady is perfect for tutorials! Please upload more!!! She has such a great voice, it is clear and concise and easy to follow along with. Thank you!!!!

  14. Microsoft Money Sunset is free and better than Quickbooks, in my opinion. https://www.microsoft.com/en-us/download/details.aspx?id=20738

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