Bookkeeping Basics for Small Business

April 24, 2015 by Ed Becker

1.     Cash/ Cash Expenditures

Cash and cash expenditures are the most important bookkeeping items in any business. Cash is the basis for everything that comes in and goes out of your account. Many times two journals are used: cash receipts and cash disbursements. This helps keep very close track of the ingoing and outgoing cash, it is that important. The use a petty cash account or record is also very important. However, petty cash does not always petty amounts, if not recorded properly you could “lose” several hundred dollars very quickly. Regularly checking how much cash you have on hand is a great habit to have in a small business.

• Review projected cash flow

Managing your cash flow is critical. Forecasting the cash you will need for the week, the month, and quarter will help you ensure there is enough money to pay bills, payroll and vendors. This also allows you to make more informed decisions in spending or investing. You need a simple statement showing current cash, known cash expenditures and expected cash receipts over the next week, month and quarter.

2.     Accounts Receivable.

It is important to keep track of the money due from customers; this is critical to ensure that your cash stays flowing. Stay on top of aged receivables, watch out for late paying customers or vendors you supply.

• Prepare and send invoices

Be sure to include payment terms, “Net 30” is most common, but if you have a known slow paying customer it is wise to not extend them out too far. Offering early payment incentives help to get invoices paid quicker, for example you can offer a 10% discount if paid in within days or something similar.

• Review aged receivables

It is also a good idea to include an “aging” column to separate “open invoices” with the number of days a bill is past due. The beginning of the month is a good time to send out overdue reminder statements. It is not uncommon to add a late fee to any account that is more than 30-60 days past due. Include this in your terms from the beginning to avoid bad relationships with your costumers.

3.     Accounts Payable.

It is never fun to owe anyone money, but sometimes it is unavoidable. Keeping good records helps to know what you are paying and when it is due so that you are not late and paying late fees. Paying bills early can also qualify your business for special discounts.

• Review invoices from vendors

Make sure to check each invoice for errors and accuracy. Keep a record of each of your vendors to ensure payments are timely. If vendors offer a discount on early payments, try to pay it early each month to save that extra discount.

4.     Sales/Inventory

The sales account tracks incoming revenue from what you sell. Recording timely and accurately is critical to knowing where your business stands.

Inventory items in stock to sell are like an investment, or cash sitting on a shelf. Keeping track of inventory to ensure that what you have on hand is what you should have on hand, it is vital to ensure there is no loss. Keeping a good handle on inventory also will allow you to notice if an employee is stealing from you. Employee theft is very real and can deeply hurt a small business.

5.     Payroll Expenses.  

This is the largest expense for many businesses. Keeping this account accurate and up to date is vital for tax and other reporting requirements. Review your payroll reports before running checks to ensure accuracy. Ensure that payroll taxes and reporting are done timely to avoid paying any penalties or fines