7 Easy Bookkeeping Tips for Entrepreneurs

Managing finances is one of the most challenging aspects for entrepreneurs or those just starting a business. Bookkeeping, in particular, can seem daunting, given the multitude of transactions, receipts, and invoices that need to be tracked and organized.  Maintaining accurate financial records is crucial when assessing the health of your business. It allows you to make informed decisions and ensures compliance with tax regulations. In the early stages as an entrepreneur, the importance of efficient small business bookkeeping cannot be overstated. 

We've put together a list of 7 bookkeeping tips for entrepreneurs to help simplify this important task. By implementing these strategies, you'll not only save time and reduce stress but also gain valuable insights into your business's financial performance. Continue reading to learn everything you need to know about bookkeeping as an entrepreneur and elevate your financial management game.

What Is Bookkeeping? 

So what is bookkeeping, and why is it so important? Put simply, bookkeeping is about tracking your financial transactions as a small business owner. It’s about an accurate and comprehensive record of each income and business expense. 

This recording of financial transactions helps small businesses plan and budget more effectively by assessing their streams of revenue and expenses all together. With just a glance at the balance sheet, the owner or an investor can get a clear picture of the financial health of the business. 

What’s the Difference Between Bookkeeping and Accounting? 

Bookkeeping and accounting are related and oftentimes confused, but they refer to distinct parts of the accounting process. While bookkeepers provide a detailed and thorough record of each financial transaction, accountants deal with the big picture. Accounting is about reporting or summarizing financial activity over time, and then drawing conclusions or making plans based on those financial statements.

Accounting is essential for analyzing your records over time and planning the future of your business based on that realistic assessment. However, none of that is possible without the careful work of bookkeeping to record transactions and keep the general ledger complete and accurate. 

In regard to your taxes, a certified public accountant (CPA) is generally the one who prepares and files your tax returns. However, the work that a bookkeeper does to maintain your records is crucial to the work of the accountant in knowing details about your business. That way, they can ensure your tax return is accurate. 

What Are the Different Types of Bookkeeping? 

There are two key different types of bookkeeping for entrepreneurs, although the core difference has to do with the level of complexity. Many small businesses start out with single-entry bookkeeping. This means keeping one simple balance sheet where each transaction is recorded once as either an income or a business expense. 

A single-entry system is all right for a lower volume of transactions, but a more complex double-entry system is necessary for fully reliable bookkeeping in a business with many financial transactions to record. 

With a double-entry system, bookkeeping requires making two different entries for each transaction. It’s all about balancing assets and liabilities and tracking where the money goes. If you receive money and mark it in the credit column, it must be accounted for in the money that goes back out in the debits in your ledger.  

Double-entry bookkeeping keeps your chart of accounts balanced and makes it much easier to put together financial reports and statements and reports about your expenditures and revenue for long-term strategy, taxes, and more.

Types of Bookkeeping Accounts for Small Businesses

As business owners, it’s not enough to delegate the financial aspects of your business to a bookkeeper or a bookkeeping system; you have to understand your business’ finances to make smarter decisions and plan for the long haul. Here is common bookkeeping terminology you should be familiar with:

Cash: All your business transactions pass through this account. The Cash account is typically divided into two journals that track their activity—Cash Receipts and Cash Disbursements.

Accounts Receivable: If your business sells products or services but collects the money later, the money owed by customers to you is called "receivables." You must track and update your Accounts Receivables consistently and regularly to promptly send out invoices to your customers.

Inventory: Any unsold products have to be accounted for and tracked. Businesses should be undergoing physical counts of their inventory periodically.

Accounts Payable: Your Accounts Payable is where you track your payments and to whom so that you don't accidentally pay someone multiple times.

Bookkeeping Tip: There's a possibility of getting discounts if you make payments early.

Loans Payable: If you've borrowed money for new equipment or upgrades, this account tracks the payments and their due dates.

Payroll Expenses: This account tracks all of your payroll expenses. To meet tax and government reporting requirements, you must keep this account up-to-date and accurate. Any discrepancies in your reporting will indeed have serious repercussions. You could be subject to an IRS audit.

Bookkeeping Skills Should Entrepreneurs Be Familiar With

If you’re just starting out as an entrepreneur, or you’ve struggled with effective bookkeeping and are looking for solutions, check out some of these tips:

1) Know Your Debits and Credits

Keeping your bookkeeping spreadsheet complete and in balance means keeping track of all debits and credits. That means recording financial transactions when the money actually flows in or out of your business and keeping track of accounts payable and accounts receivable.

What money do you owe but haven’t paid, and what money is still owed to you? Your accounts should reflect all the payments you anticipate in the future so that as soon as money comes in on one side or bills on the other, you know exactly where that money is going, or how that bill is getting paid. 

2) Stay Organized

You need to know where everything is recorded and how. Keep a uniform pattern, and then double-check later so that nothing falls through the cracks. The double-entry system will let you catch mistakes if the accounts don’t line up later, but it only helps if you take the time to balance them. Establish a clear and precise way of doing things and don’t deviate from it. 

3) Find a Program That Works

Finding an appropriate bookkeeping software for your business can do wonders for your efficiency and make your recording of financial transactions more reliable than ever. Take the time to adjust a program to the particular work processes of your business so that bookkeeping you can maintain your books with minimal effort. 

4) Spend Time on Details

Careful attention to detail will do wonders for your record-keeping. As the business owner, you create the norms of the business. If you show a disregard for careful and proper bookkeeping, then other employees around you will think it isn’t important. 

Being too relaxed with details also leads to errors and missing payments later on. You could lose money or fail to pay debts when necessary, and your business will suffer even more when you need to produce an income statement and a balanced general ledger for taxes or a loan. 

5) Communicate Clearly 

Effective communication with your staff is essential for maintaining a healthy cash flow and good bookkeeping. No matter how careful and responsible you are about reporting expenses and revenue and recording them, your work could be ruined by other employees if they don’t know how you do your bookkeeping or why it’s important. 

If multiple people are going to be working with your ledger, set up very clear instructions for how the recording is done so that everyone who works in the bookkeeping is on the same page. If you don’t tell your employees everything they need to know and how to do the work, it will be your fault when they make a mistake, and you could easily end up with duplicate entries, missing information, or other issues. 

6) Separate Personal & Business Expenses

A common bookkeeping mistake for entrepreneurs is not separating their personal and business expenses. It can be tempting to mix the two, especially when you're just starting out, but this can cause serious problems regarding taxes and legal liability.

To avoid these issues, make sure that you have a separate personal and business bank account as well as credit cards. This will make it easier to track your income and expenses, and it will also help you avoid accidentally deducting personal expenses from your taxes.

7) Hire a Professional

When in doubt, bring in an expert. As your business grows, it will become harder and harder to keep track of your finances in a comprehensive and accurate way. Double-entry bookkeeping is difficult, especially when you’re busy leading your business. But it’s absolutely necessary for a growing business with a high volume of financial transactions to stay on top of its records. Finding a professional bookkeeper to do it takes the work off of you, and the benefits don’t stop there.

A professional bookkeeper on your team could provide: 

• Reliable, accurate financial records and data
• Regular and timely financial statements 
• An analytical big-picture perspective of the financial health of your business
• Unbiased record-keeping and evaluation
• Peace of mind and more time for you to focus on growth and revenue  

It all depends on what your business needs and where you want your business to go. Plan for the future and give your business what it needs in order to succeed today. However, careful financial planning and strict bookkeeping are must-haves for any business owner that wants their company to survive and grow in the long term.