Bookkeeping for Small Businesses: 2025 Complete Guide

You can further analyze your balance sheet and get insight into your business using financial ratios. Quick note—every business is unique, so before you get started, it’s always best to speak with a professional who can help you decide what’s example of small business bookkeeping best for your business. Cash is always listed first, followed by the rest of your assets, based on how quickly each asset can be converted into cash.

• But, just like a balanced diet keeps your body running smoothly, organized books keep your business healthy and prepared for the future.
• Speak to an accountant or HMRC, but do so well before the filing deadline.
• It’s the basis of accurate financial reporting, smart financial planning, and smooth tax preparation.
• If you accept in-person payments, you’ll buy and set up an online payment processor with in-person credit and debit card reader hardware and sync it to your online store.
• To steer clear of accounting blunders, inaccurate tax filings, and overspending, open a separate bank account for business.
• Business transactions are ordinarily summarized in books called journals and ledgers.

What you need to set up small business bookkeeping

• A  chart of accounts lists all business transaction and is used to compile statements, review progress and locate transactions.
• As such submitting information that looks odd could cause you an issue.
• Essentially, it’s all about recording how much money entered the business and how much money left it.
• Inventory is the stock of goods a business has on hand or in transit, waiting to be sold.

Cash payments can easily slip Bookkeeping for Painters through the cracks when managing your finances. Make sure to document every cash transaction so that your bookkeeping reflects the actual income of your business. Failing to do so can lead to discrepancies that complicate your financial records and tax filings. Bookkeeping is the foundation of any successful business, especially for small businesses where every penny counts.

Choose your payment methods

You check your financial records and find that business has been slower this year, and your estimated net taxes owed will only be $2,900 this year. In this case, you can still pay your taxes as a lump sum at the end of the year. However, if your business was steady this year and you once again owe over $3,000, you’ll need to start paying by quarterly instalments. When you account for deferred expenses, your bookkeeping will reflect the month you actually enjoy the benefit of the expense rather than the month in which you paid it. As illustrated above, between the two basic methods of accounting (cash or accrual), you can best account for prepaid expenses using the accrual method. After you have sold goods or provided a service, you invoice the purchaser.

What is the best accounting method for a small business?

If you categorize your transactions, then at the end of a month or year, you’ll be able to see how much money each category added to your income or costs. You only need to record money when it enters or leaves your bank account, which simplifies record keeping. Follow these 13 steps for small business accounting, including bookkeeping software and when to hire a CPA, to keep your company’s finances on track.

• Organize the Records

Most options cover basic invoices, expenses, and financial reports, but typically lack more advanced features like payroll, double-entry bookkeeping, or automated bank account sync. They might work well for a new business, but as your financial transactions increase, you may need to invest in more comprehensive accounting software or hire a bookkeeper. When you’re just starting your small business journey, you can handle bookkeeping manually with structured organization and regular upkeep.

The 3 golden rules of bookkeeping to follow

Accrual accounting is preferred as it gives a more complete snapshot of the company’s financial performance and more accurately matches expenses with revenue. Despite the importance of accurate bookkeeping practices, most people don’t feel entirely confident with maintaining detailed business finances. Whether it’s a lack of interest or knowledge, many businesses outsource retained earnings this process to a professional bookkeeper to ensure accurate and healthy finances all around.