As a small business owner, you likely wear many hats. You are the CEO, the marketing director, the salesperson, and sometimes even the janitor. But one role that is often overlooked is that of a bookkeeper. A good bookkeeper can be a valuable asset to any small business.
What is Small Business Accounting?
Small business accounting is the process of tracking and managing the financial activities of a small business. This includes recording and classifying transactions, preparing financial statements, and creating budgeting and forecasting reports.
Small business accounting is essential for keeping track of income and expenses, measuring profitability, and making sound financial decisions. Without accurate accounting records, it would be difficult to know how much money is coming in or going out, what areas are generating the most revenue, or where cuts need to be made.
For these reasons, small business accounting is critical for any small business owner.
What Are the Main Components of Small Business Accounting?
Small business accounting refers to the financial activities of a company with fewer than 500 employees. The three main components of small business accounting are income, expenses, and profit.
- Income includes all the money that comes into the business, such as sales revenue, interest income, and government grants.
- Expenses include all the money that goes out of the business, such as the cost of goods sold, employee salaries, and rent.
- Profit is the difference between income and expenses.
To be successful, a small business must generate more income than the expense; otherwise, it will eventually go bankrupt. Therefore, small business owners must understand accounting principles well to make sound financial decisions.
What is a Bookkeeper’s Role in Your Business?
So, what is the role of a bookkeeper for your business? Let’s find out!
Keep Track of the Financial Transactions
A bookkeeper’s most crucial role is to keep track of all the financial transactions that occur within a business. This includes:
- Sales: Every time a product or service is sold, that information needs to be recorded. This includes the date of the sale, the amount of the sale, and what was sold.
- Purchases: Anytime a business buys something, whether it’s inventory for resale or office supplies, that purchase needs to be recorded. This information is used in calculating the cost of goods sold (COGS), which is deducted from revenue to arrive at gross profit.
- Payments: All payments made by the business need to be tracked, including employee salaries, rent, utilities, and loan payments. This information is used in preparing cash flow statements.
- Receipts: Every time money comes into the business, whether from sales or investments, that information needs to be recorded. This is used in preparing the income statement.
This information is vital in preparing accurate financial statements and tax returns.
Maintain Accurate Records
In addition to tracking transactions, bookkeepers also maintain accurate records of:
- Assets: This includes everything the business owns, such as cash, inventory, equipment, and real estate.
- Liabilities: This includes everything the business owes, such as loans, credit card balances, and accounts payable.
- Equity: This is the difference between assets and liabilities. It represents the owner’s investment in the business.
This information is used to prepare balance sheets, which provide insights into the financial health of a business.
Offer Insights Into Financial Performance
Bookkeepers not only track and record financial information but also offer valuable insights into how a business performs financially. They can:
- Identify Trends: Bookkeepers can identify revenue, expenses, and other financial data trends. This information can make informed decisions about where to allocate resources.
- Recommend Strategies: Based on their analysis of financial data, bookkeepers can offer recommendations for improving financial performance. For example, they may suggest ways to reduce expenses or increase sales.
When it comes to small business accounting, a good bookkeeper is essential! They play a vital role in tracking and recording financial transactions, maintaining accurate records, and offering insights into financial performance. If you don’t have a bookkeeper on staff, now is the time to consider hiring one.