Bookkeeping Basics for SMBs

by Mateusz Kuczera

Published May 8, 2023

It’s the beginning of the year and Sasha is about to start working on the books for the previous year. As a small business owner who has been active for less than a year, Sasha has no prior training in bookkeeping.

“Alright,” she says as she opens her QuickBooks, “let’s do this.” While she’s hustling away at classifying December’s expenses, Natasha walks in behind him.

“Hey Sasha,” she says as she approaches his computer screen.

“Morning Natasha,” she replies. “All good?”

“Yeah. I just found this stack of receipts from November.”

“Great timing,” says Sasha. “I’m actually working on the books.” As she looks through the receipts, she notices a large expense on computer equipment. “Oh, that’s when we bought the three laptops for you guys.”

“Yeah,” answers Natasha. “Think that’s a regular expense?”

“I think so,” she says casually. “Anyways, what could go wrong?”

Most expenses are easy to classify but in this particular case, Sasha is actually wrong. In Canada, computer equipment is considered an asset and falls into one of the several Capital Cost Allowances as defined by the Canadian Revenue Agency. And for a new business owner not being aware of this fact, the books may contain a plethora of misclassified lines.

As is evident, Bookkeeping is an essential aspect of running a small business. It helps keeping track of financial transactions and gives a clear picture of the company's financial health. Without proper bookkeeping, it can be difficult to manage finances and make informed decisions. However, bookkeeping can also be time-consuming and complex, especially for small businesses with limited resources. In this article, some best practices for bookkeeping in small companies will be discussed.

Accurate and Detailed Records

One of the most important aspects of bookkeeping is keeping accurate and detailed records of all financial transactions. This includes sales, purchases, and payments, amongst others. By keeping detailed records, a clear picture of your company's financial health is maintained which allows for informed decisions about the business.

The Criticality of a Bookkeeping and Accounting Software

Small businesses often have limited resources, which makes it difficult to keep up with the bookkeeping manually. To save time and ensure accuracy, a bookkeeping software is strongly recommended. There are a number of bookkeeping software programs available, both online and offline, which can automate the process and make it easier to keep track of finances. Some examples of such software include QuickBooks, Sage, Xero and Wave. At Mondro, we recommend QuickBooks, which is easy to learn and very powerful. Furthermore, by combining a bookkeeping software with an ERP software such as Odoo, the majority of the task becomes automatic, resulting in greater accuracy and efficiency.

Segregate or Outsource the Work

Bookkeeping requires a lot of trust and integrity, it's important to have a system of checks and balances in place to minimize errors and prevent fraud. One way to do this is to segregate duties, which means dividing the bookkeeping tasks among different people in the company. This can help prevent mistakes and ensure accuracy. The assistance of a professional accountant or bookkeeper is generally recommended if the company lacks the expertise to manage the books.

Set up a Budget

A budget is a plan that shows how much money is expected to be earned and how much to be spent. It is a useful tool for small businesses because it allows to anticipate and plan for future expenses. Setting up a budget provide information of where costs need to be cut and adjustments made in order to stay financially stable. Additionally, software tools like QuickBooks allow for the automation of budget creation. By having real-time visibility on budget when compared to actual spend, the business can adjust and adapt to unforeseen situations very quickly.

Keep up with Taxes

Bookkeeping also includes keeping track of taxes. Small businesses are required to pay taxes on their income, sales, and payroll, among other things. It's important to stay up to date with the latest tax laws and regulations in order to avoid any penalties or fines. Doing tax work manually is a gargantuan task, even for a small business.

While it is recommended to work with a qualified accountant of fiscalist for anything tax related, software like QuickBooks allow the tracking and even the remittance (payment) of payroll and sales taxes. And although this required thorough and rigorous bookkeeping practices, automating payroll and sales taxes saves countless hours which can afterwards be dedicated to the core business.

Review your Statements Regularly

Bookkeeping is not just about keeping accurate records; it's also about using that information to make informed decisions about the business. Regularly reviewing financial statements, such as balance sheets and income statements, can help identify trends and make adjustments to improve the company's financial performance. Again, QuickBooks allows the generation of statements with a single click, making the review fast and easy.

Takeaway

Bookkeeping is an essential aspect of running a small business. By following the best practices outlined in this article, bookkeeping will be accurate, efficient, and effective. Remember to use software to automate the process, segregate or outsource duties, set up a budget, keep up with taxes, and review your financial statements regularly. With good bookkeeping in place, you'll be able to make informed decisions and manage your finances with confidence.