Bookkeeping and Accounting

The basics are pretty simple: you need to pay vendors, bill customers, make deposits, and pay your taxes. Beyond that it starts to get complex, pretty quickly.

The best way for small business owners and startup entrepreneurs to deal with that complexity is through careful planning, detailed documentation, and careful organization. The worst thing a business owner can do is to let those bills and invoices, pile up which can not only make things crazy difficult when tax time comes around, but can also serve to kill your cash flow and, ultimately, your ability to stay on business.

Accounting helps you plan for growth. If you don’t understand your financial information, you won’ know how to set proper goals.

Accounting will also help you to secure a business loan. Every lender, including every bank, will ask for up-to-date financial statements and statements dating back at least three years. And you’ll need to provide at least a one-year cash flow projection. You won’t be able to deliver any of these unless you have an accounting system in place.

Bookkeeping is the recording, organization, storage, and retrieval of financial information related to your business.

Accounting and bookkeeping do overlap in many ways. The main difference between the two is that bookkeeping is how you record and categorize financial information, whereas accounting puts the information to use through analysis, strategy, and tax planning.

Any business from the smallest of hot dog stands to the largest of public companies creates data. Sales data, inventory data, employee data, customer data. The list is endless. And like any kind of data, if data is not organized and accessible it is completely useless.

With accounting data, this is doubly-true and the speed at which a small business can fall behind can be breathtaking. Even a few weeks of unrecorded sales transactions, or a month of un-mailed invoices can quickly swamp a small business, destroy cash flow, and put it out of business faster than you can spell IRS.

A good bookkeeper can help you set up a filing system, keep bills organized and paid on time, be sure customer invoices go out promptly, and put systems in place that will force you to do these things in a disciplined and methodical way.

Financial statements are written reports that summarize how your business is doing financially.

There are three main types of financial statements: the balance sheet, income statement, and cash flow statement. Together, these three types of financial statements tell you where your business’s money is and how it got there.

Accounting software can easily generate these financial statements, and you can ask a bookkeeper to do it for you if they’re maintaining the books for your company.

A small business owner or manager needs to choose the right accounting software. This is often driven by your choice of accountant: if your CPA uses Quickbooks, it’s a reasonable bet that you will, too. But not all accountants use QB and there is no rule that says you need to use it.

In fact, the trend is away from installed accounting packages and towards cloud-based solutions for small business bookkeeping and accounting. So, while Quickbooks had myriad features and some very powerful tools and is, in many ways, the industry standard, some of the online options also provide robust tools and feature sets and offer the convenience and economy of cloud-based software. Two of the leaders in subscription-based small business accounting packages are Wave Accounting, Xero, and Freshbooks. These services offer accounting, invoicing, and project management tools as well as standard reporting and tax-preparation features.