The Importance of Professional Bookkeeping for Small Businesses
For small businesses, bookkeeping is an essential part of the tax planning process. Bookkeeping involves keeping track of your company’s financial transactions on a regular basis. With an organized log of all business expenses, you’ll be able to make accurate financial decisions and tax preparations.
Key Takeaways:
- Bookkeeping and accounting are technically two separate services–but proper bookkeeping is necessary for any larger-scale accounting to take place.
- Proper bookkeeping is essential for small businesses so they may understand their business’s performance and make accurate and timely financial decisions.
- Don’t get rid of your accounting software when you hire a bookkeeper; they will need those records.
- To keep your books accurate, there’s a large list of records you need to be keeping track of–a professional can help you keep things organized.
Bookkeeping vs. Accounting
While many still use the terms “bookkeeping” and “accounting” interchangeably, they’re actually two different services. While they can be performed by two different professionals, accountants can also provide bookkeeping services.
Bookkeeping, in short, is concerned with keeping records of daily transactions on a cash basis. There are a range of services that fall under “bookkeeping,” and can include:
- Reconciliations
- Coding transactions after they happen
- Recording bills as they come in
- Running the payments (checks or online)
- Invoicing customers
- Recording deposits
Whether or not your bookkeeper provides all of these services greatly depends on the business owner’s preferences, the size of the business, and the business’s physical location.
Accounting, on the other hand, is concerned with handling big-picture financials that wouldn’t be possible to manage without proper small business bookkeeping, including:
- Adjusting books to be on an accrual basis (following GAAP – Generally Accepted Accounting Principles)
- Determining which expenses should be capitalized assets
- Calculating depreciation and amortization and makes those adjustments
- Understanding the different types of entities and knowing the correct terminology and chart of accounts to use on the financials
- Preparing the financial statements
- Preparing budgets
- …And more.
Why is bookkeeping important for small businesses?
Proper bookkeeping provides an accurate measure of your business’s revenue, income, and expenses. With this clarity, you and your accountant can make/strategize future financial decisions with confidence.
Without proper bookkeeping, you have a higher risk of making some costly mistakes. These could include:
- Inaccurately reporting your business’s income on tax returns (either over-stated or under-stated)
- Missing out on key tax deductions
- Lose out on financing from a bank
- Making untimely resolutions or pivots in your strategy
…All because you can’t accurately see your business’s growth or decline.
So, with all the time, effort, and heart that you put into your small business, you want to make sure it’s standing on stable financial ground. That means investing time (and/or money) into making your books balanced and accurate.
How The Bookkeeping Process Works at Wood CPA
Some small business owners choose to be their own bookkeepers, and are successful. These folks might have backgrounds in finance or consider themselves to be good with numbers.
Most small business owners, however, choose to outsource their bookkeeping, so they can continue to focus on the day to day tasks of running their business.
At Wood CPA, small business bookkeeping is just one of the many services we offer to our clients. Our accountants and professionals work to make the onboarding process as simple and streamlined as possible. Here’s a basic outline of what small business owners could expect when getting started with Wood CPA’s bookkeeping service:
- First, we either set up a brand new set of books for the business, or take over the business’s current books (if the owner is currently using QuickBooks Online).
- Then, we gather information on all of the business’s balance sheet accounts, including bank accounts, inventory, accounts receivable, fixed assets, accounts payable, credit cards, loans, etc.
- Once we have that information, we can begin recording all of the transactions that go through each of those accounts.
- As we work, we’ll put together a list of transactions that we need more information on to properly record them, and then email that list to the business owner.
- To speed up the process, we will request third-party online access to bank and credit card accounts, to avoid needing to ask clients for statements.
NOTE: Just because you are outsourcing your bookkeeping, you as the business owner are still an important piece of the bookkeeping puzzle!
Your bookkeeper will have questions about transactions and need to be in communication with you in order to create accurate financials. Bookkeeping isn’t something you can put on the back burner and forget about. It requires consistent and reliable communication in order to be efficient and successful.
Can I Get Rid of My Accounting Software When I Hire a Bookkeeper?
The short answer is… No! (Please and thank you.)
Some small business owners use specific software for their POS, inventory tracking, job costing, etc. If that sounds like you, know that Wood CPA can pull information from all of those various programs to put together accurate books for your business. So, if you’re already using accounting software when you hire a professional bookkeeper or accountant, don’t get rid of it!
Want to make sure you have access to your accounting software, even as you’re outsourcing your bookkeeping? No problem! At Wood CPA, we can work with your subscription to QuickBooks online so that you have full visibility, while we can continue our work through the “accountant’s access” feature.
What records should you be keeping?
To keep your books as accurate as possible, all your business’s receipts need to be saved in an organized and consistent manner. You can choose to keep paper receipts, electronic receipts, or both. The IRS website has a list of the “supporting business documents” you should be keeping track of, including:
- Cash register receipts
- Invoices
- Deposit information
- Canceled checks
- Credit card receipts and statements
- Your mileage (and proof of other travel expenses)
- Any assets (property that you own and use for your business)
- …And more.
Remember, if the IRS were to ever question an expense, it would immediately get disallowed if there was no receipt. Your bookkeeper will definitely be asking for them, so keep those receipts!
Why choose Wood CPA?
All too often, we see clients who tried to do their own books, and quickly found out that it was a bigger beast than they anticipated. Due to the hectic nature of running a business, these entries are frequently either missed, inaccurate, or both.
That’s the risk small business owners run when their finances aren’t handled by a professional.
When you invest in bookkeeping services offered at Wood CPA, however, timeliness and accuracy are the standard. We take the time to listen and understand our clients’ needs, and double and triple check everything to make sure that you (and the IRS!) are getting an accurate representation of your business’s performance.
Of course, there’s much more to keeping your business’s financials in good order than just bookkeeping. This service is just one piece of the larger financial puzzle. If you have questions about small business bookkeeping, accounting, or any one of our many advisory services, schedule a meeting with Wood CPA today!
