When you run a business or nonprofit organization, bookkeeping is an essential part of that process. You need to maintain well-organized books so that you can see how your business is performing financially. And when tax time arrives, you’ll have the details you need. Ideally, you should understand a few bookkeeping basics, and know when it’s time to get professional help for your bookkeeping needs.
The Basics of Bookkeeping
Bookkeeping simply refers to the keeping of financial books, or records, of a company or organization. When you launch a business or nonprofit organization, there are a few bookkeeping essentials you should know. You’ll want to understand the basics of these elements whether you do your own bookkeeping or outsource the work to professionals.
In particular, you should understand the difference between cash and accrual accounting. You should also know the most common accounts used by most bookkeepers, including cash, accounts receivables, accounts payable, loans payable, sales, inventory, purchases, payroll, owners’ equity, and retained earnings. To ensure your company is moving in the right direction, regular attention to these aspects of your company’s finances is important. Although you may use a variety of different reports, the three essentials are the balance sheet, the income statement, and the statement of cash flows.
Bookkeeping Services for Small Businesses
Bookkeepers manage the chart of accounts, track sales, enter expenses, and generate reports for your company. They also handle account reconciliations and generate basic reports such as accounts payable and accounts receivable agings. When you launch or expand your business, you should decide who will be handling your bookkeeping needs. Will that person be an employee of your company, or will you hire a part-time bookkeeper or a professional bookkeeping service? You also need to ensure that you hire a professional who can handle your immediate needs as well as your future needs.
As you interview different professionals or companies, make sure you choose someone who can provide all the services you need. Consider hiring a company that offers a full range of accounting services from bookkeeping to controllership to interim CFO services. This allows you to continue to work with that company as your business grows and changes. Finally, you need the right suite of services that complement your company’s needs.
Outsourced bookkeeping services offer a range of benefits, including the following:
- Save time, compared to handling the books internally
- Allow you to focus on growing your business
- Give you access to an objective third-party who can provide perspective on financial decisions
- Handle complex tasks such as payroll, employee expense reimbursement, etc.
- Keep costs down by negotiating payment terms and working with vendors
- Avoid late fees by staying on top of accounts payable
- Decrease accounts receivables turnover, speed up payment time, and manage invoices more effectively
- File sales and use tax reports
- Provide you with information for your annual business tax return
Keep in mind that the services provided by different bookkeepers can vary. Before hiring anyone to handle your books, make sure that you understand the services and the costs involved. Ask prospective bookkeepers or financial professionals how they plan to help your business in ways that drive growth and success.
Bookkeeping software gives you a reliable place to store your business’s financial details, and most software has more features than a simple spreadsheet. Additionally, you can often sync your bookkeeping software to your point-of-sale system, bank accounts, business credit cards, timekeeping software, and other programs, which save time and eliminate the errors associated with manual entry.
However, bookkeeping software can be difficult to master and time-consuming to use. Additionally, the software can only track the numbers. It can’t give you financial advice or provide other advisory services. To track all of your financial information accurately, and to ensure you get the reports you need, it’s typically more beneficial to work with a professional than try to learn bookkeeping software on your own.
When you extend credit to clients or issue invoices to customers, you track those amounts in the accounts receivables section of your accounting records. To maintain a healthy cash flow, you need clients to pay you in a timely fashion. To encourage timely payments you should invoice promptly, make sure you reach the clients in the best way (mail, email, etc.), and follow up on late payments. You may also want to offer discounts for early payments and assess late fees on delinquent accounts.
Bookkeeping services can help to ensure that you stay on top of your accounts receivables. The bookkeeper can enter invoices into your system, make sure that important details are correct, and track payments as they are submitted. They can also generate cash flow reports based on your accounts receivables history.
Accounts payable refers to bills your business pays to other entities. This category includes monthly bills such as lease payments and utility bills, as well as invoices from your vendors. For instance, if you order food for your restaurant or raw materials for your manufacturing facility and your vendor sends you an invoice, you track the amount due in your accounts payable records.
You need to pay careful attention to your accounts payable because it directly affects your cash flow and your relationship with your vendors. Paying bills at the wrong time may compromise your ability to cover other expenses, and making late payments can also jeopardize your standing with vendors. An experienced bookkeeping professional can help you manage your accounts payable more effectively.
Unfortunately, the U.S. Small Business Administration reports that about half of all small businesses fail within the first five years, and 70% shut their doors within 10 years. Many of these companies go out of business due to cash flow problems or because they don’t have the right team. For the health of your business, you need to ensure that you have the right team of professionals assisting you, and that includes bookkeepers.
By outsourcing your bookkeeping needs you save time, and you also avoid the hassle, labor burden, and liability of committing to a full-time, internal bookkeeping department. At the same time, you benefit from their financial experience and reap the rewards of having a neutral third-party reviewing your books. You can customize the services to meet your needs, which can include recording financial transactions, maintaining your chart of accounts, managing accounts payable and receivables, remitting payments, doing bank reconciliations, and more.
When you need bookkeeping services in Massachusetts, we can help. At Navitance, we offer a suite of financial services for small businesses, nonprofits, and other organizations. In addition to bookkeeping services, we also offer interim chief financial officer (CFO) services and financial restructuring services. Contact us today to learn how we can help your business.