Bookkeeping Basics for New Business Owners | Article – HSBC VisionGo
As a new business owner, you will need to be more hands-on with your bookkeeping. Here are some basics from Osome to help you manage your finances.
Whether you love numbers or run a mile as soon as a ledger opens, as a new business owner, it will fall on you to manage your accounting needs. There is no denying that clean and consistent bookkeeping is the foundation of a profitable business; it gives you control of your financial situation, helps you make the right decisions and also helps attract investors in the long run.
What is Bookkeeping and Why is it Important?
Simply put, bookkeeping is the recording, categorising and organising of all transaction of a company. It is important to maintain good financial records as it gives you the right perspective of your company’s fiscal health, allowing you to make the business decisions with confidence and clarity. Good bookkeeping also helps you:
Monitor your cash flow and optimise costs
Consistent bookkeeping will keep you updated on your business performance and the money at your disposal. Keeping track of your financials will give you better control over your business planning and expenses.
Focus on business strategy
‘That new piece of machinery might allow you to expand your range, but can your business actually afford it?’ These type of decisions become easier to make when you understand your cash flow well. Understanding your accounts allows you to ground your business strategies in facts and proceed with confidence. Staying realistic will keep your business in the green and stop you from taking on unsustainable risks.
Keep financial information on your fingertips
Maintaining a tight bookkeeping schedule allows you to crunch numbers on the go. You are not dependent on your accountant and can take business decisions quickly.
Overall Business analysis
Organised accounts give you valuable insight into your business. The numbers make it easier to understand profitability and business strengths and weaknesses.
The benefits of good bookkeeping are undeniable! For new business owners handling their first set of accounts, we have put together some best practices for 2021 -
1.Use the double-entry system
The Osome experts recommend that business owners use the double-entry bookkeeping system for recording transactions. It might sound more tedious and complicated, but recording each transaction in two places will make sure your records are error-free and will give you a comprehensive picture of where your money is coming from and going to.
2. Set up a chart of accounts
This refers to using a comprehensive list of categories to classify and differentiate your financial assets, liabilities, equity, income and more. It involves tracking and adjusting every transaction of your business according to a category which will give you a more in-depth overview of how much of your money is being used for various activities.
The most common categories are:
- Equity - This is your investment in the company as the owner
- Accounts Payable - the account you owe to third parties such as suppliers, lenders etc.
- Accounts Receivable - what other people such as your clients owe you.
- Costs of Goods Sold - the amount you spend on producing the products or services you are selling
- Expenses - amounts not directly related to your sale of goods or services, but needed to run the business.
3. Balance the Books
We also recommend you spend time understanding and balancing your financial records. In a nutshell, you need to subtract your Liabilities from your Assets to arrive at Equity. This reveals your real equity allowing you to really evaluate your financial standing.
4. Preparing Financial Statements
As a business owner, you will also be expected to prepare financial statements such as the income statement, balance sheet and cash flow statement. The balance sheet shows you the balance of different accounts at the year-end, while the Income Statement shows the total amount of Income and Expense during the reporting period. In some cases, you will be required to submit these documents to the authorities. If you are not comfortable with numbers, we recommend you outsource this part of the work to a registered Chartered Accountant or an agency.
As a small business owner, doing your own books will give you a thorough grounding in financial matters and will really help you understand your business. However, if numbers are not your strong point and you find it stressful, we recommend outsourcing it to an experienced agency.
At Osome, we a have a whole team of experienced accountants and other business professionals who can help you with your bookkeeping, navigate your compliance-related paperwork and be on hand to advise on money matters. Do get in touch to know more.