An extremely important part of maintaining the long-term success of your business is being able to manage your financial status. Now I can being a creative person, this task can be tedious, but it’s an important one. Not everyone has a friend (or a wife in my case) that’s great at both.
What is Bookkeeping? It provides a detailed report of your company’s day-to-day transactions and is crucial for your business, especially when you don’t have the budget yet to hire someone to do it for you. Long term, it’s beneficial for your accounting because it makes it easier.
WHAT ARE THE 8 MOST IMPORTANT INFORMATION FOR BOOKKEEPING?
1. Start-up Capital – This is what entrepreneurs use to pay for any or all of the required expenses involved in creating a new business. This includes paying for the initial hires, obtaining office space, permits, licenses, inventory, research and market testing, product manufacturing, marketing, or any other expense.
2. Inventory – Each & every product in your inventory is worth money. You’ll need to have a clear record of each. You’ll need to carry our stocktaking physically to refresh the numbers in your book. I’ll dive into stocktaking in my later blogs.
3. Accounts Receivable – All types of payments you will get, not including loans and investment funds come here. This is important when payments from your customers are not immediately due. You can sort this by date, payee, category & added remarks to help you recognize funds in the future.
4. Payroll Expense – All salaries you pay to your employees (full-time & part-time) for their services to your business come in here. With it are the cost of all related payroll taxes, including insurance, health benefits, government loans, incentives and bonuses. Take note that Freelancers are independent contractors, thus they are not considered employees. They fall under the next category.
5. Accounts Payable – These include all upcoming payments scheduled, thus, this is all for FUTURE PAYMENTS, like rent, utilities, freelance work, retainer fees for designers, contractual work and other recurring payments that is vital to the business operational expenses (OPEX). You can sort these by date, payee, category, remarks and if a check is used, a check number. You could also bookmark your accounts payable with 2 dates, payment due date and the penalties deadline date.
6. Cash – This is where you record all cash receipts and payments such as bank deposits and withdrawals within your “CASH ACCOUNT”.
7. Sales – This is important because this is your revenue from selling your products/services. Recording your sales on a timely basis is important for financial status analysis if your doing well or not.
8. Purchase – This is where your cost for any items you buy for your business comes in. It’s important because it will help calculate for your company’s gross profit.
You can create a ledger book with the current balance of all your financial accounts using software like Microsoft Excel, Google Sheets, Numbers (For Mac) or a professional accounting software.
For BIR, there are only 3 columns to remember that’s important: Debit, Credit & Particulars.
What about ACCOUNTING?
This is more complicated than bookkeeping. This is an important component for growth of a business. If your budget allows you to do so, work with a REPUTABLE Accountant so you can save a lot of money & minimize or better yet, avoid any legal issues. My wife Kristina works as an Accounting Consultant for various companies and private individuals. While it’s ok to consider using accounting software for some tasks, a good accountant is a great ally for tasks, including strategic tax planning, financial forecasting & the bloodiest of them all, Tax Filing, where you can’t go have any errors.
What can an accountant do for your business?
⁃ Prepare income statements
⁃ Prepare balance sheets
⁃ Analyze cost of operations (daily, monthly & annual)
⁃ Complete tax returns
⁃ Prepare cash flow statements
⁃ Prepare adjusting entries, which is recording expenses that have occurred but are not yet recorded through bookkeeping
⁃ Help the business owner in understanding the impact of financial decisions
It’s also important to remember that an accountant has NO RIGHT TO SIGN any of your checks or spend your money. If they are able to do so, make sure to revoke or remove any access for them to do that to your business.
The more experienced your accountant is, the better. You get what you pay for. So make sure to choose wisely who you will work with.
Question of the day: Who does your bookkeeping and do you have an accountant that you work with for your business?