How do bookkeeping services help small businesses?

It can be overwhelming to take care of back-office responsibilities like bookkeeping while still focusing on growing your business. Online bookkeeping services for small businesses can help.

Bookkeeping services for small businesses should do more than help you track financial records accurately. A professional bookkeeper can keep track of all transactions, reconcile bank statements, prepare financial reports, and more. Working with people whose job this is gives you the benefit of their experience.

Below are the main benefits of bookkeeping services for small businesses, starting with what bookkeeping covers.

What is bookkeeping?

Bookkeeping is the process of recording and organizing financial transactions. It is the foundation of accounting, covering the day-to-day recording of sales, purchases, sales tax, loans, payroll, operating expenses, and other transactions.

Accounting then analyzes and reports on the data that bookkeeping collects. Accurate records let business owners know their financial position and spot problems early, before they grow. How well your bookkeeping is done determines the accuracy of everything built on it, so it is worth having it done by someone qualified.

7 benefits of bookkeeping services for small business

Outsourcing bookkeeping helps you organize and analyze your financial information so you can judge the financial health of your business with confidence. There are other reasons it matters too.

“Everyone in business must keep records,” says the IRS in Publication 583, Starting a Business and Keeping Records¹, and those records support the entries in your books and on your tax return. The IRS says to keep records² generally for 3 years, and employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later, with longer periods in some situations. Without accurate bookkeeping, reporting the right information to the IRS becomes difficult. Here is how bookkeeping services help small businesses.

1. Makes you prepared for tax time

Every business has to file a tax return for the tax year, and the deadlines are firm. With a bookkeeping process in place, your financial information is ready on time, so you aren’t scrambling for receipts and invoices at the last minute. Your tax preparer then works from clean records.

2. Enhances accurate budgeting

Outsourcing a bookkeeping service makes it easier to budget for the business accurately. With proper organization of your income and expenses, it’s straightforward to review your costs and financial resources. A budget is the financial roadmap for your business, helping you plan for the year ahead.

Comparing your budget with your actual results is a reliable way to find cost savings or spot cash flow issues early. If your books are inaccurate, budgeting becomes guesswork.

3. Promotes better decision making

As a business person, you need to clearly understand your finances to plan your company’s future effectively. You may have to make significant decisions like opening a new location or hiring a new employee. To make such decisions with confidence, it’s critical to understand your company’s financial performance.

Accurate, up-to-date books show you where you stand. If the reports show cash running short, you can act early, for example by tightening collections, delaying spending, or arranging financing.

4. Maintains organized records

The stress of trying to find a crucial document at the last minute can lead to missed deadlines and possibly a few errors, and mistakes in your records can be costly. A bookkeeping service keeps your books updated throughout the year and your records organized, so the information you need is easy to find.

5. It helps you focus on other business operations

If you decide to do bookkeeping on your own, you will spend much of your time paying invoices, processing payroll, and tracking expenses. As a result, you will have insufficient time to attend to other operations. A bookkeeping service allows you to focus on what you do best. Having enough time to focus on operations enables you to grow your business effectively and gives you ample time for research and development plans.

6. Can lower costs

An in-house bookkeeper comes with a salary, payroll taxes, and benefits. A bookkeeping service charges a fee for the work you need instead, which can cost less than a hire. Compare the two on the total cost and on what you receive each month.

7. Avoids conflicts of interest

It can be risky to entrust bookkeeping and accounting to one of the owners in partnership businesses. Misconduct accusations can potentially ruin the relationship even when a record-keeping error is unintentional. If something goes wrong, the other members might question the intentions of the person responsible.

Hiring an independent bookkeeping service helps avoid these tensions, because the records are kept by someone with no stake in the partnership.

What bookkeeping method should you use?

One of the first steps to bookkeeping for small businesses is to decide which method you should use. The method you choose may depend on various factors, including the amount of revenue you earn and the volume of daily transactions your business processes.

Below, we discuss two of the most popular bookkeeping methods for small businesses: single-entry and double-entry bookkeeping.

Single-entry bookkeeping

A single-entry system records each income and expense transaction once, usually in a cash book that lists money in and money out.

For example, if you receive $1,000 from a customer, you record $1,000 of income. This method can suit very small businesses with few transactions. However, it does not track assets and liabilities, so it can’t produce a balance sheet.

Double-entry bookkeeping

As the name suggests, a double-entry bookkeeping system records every transaction in at least two accounts, with equal debits and credits, so the books always balance.

For example, if a customer pays you $1,000 for a sale, you debit your cash (bank) account and credit sales. If the customer is paying an invoice you already recorded, you credit accounts receivable instead. Because every entry has two sides, errors are easier to find, and the books produce a balance sheet as well as a profit and loss statement.

How to do bookkeeping for small businesses

Bookkeeping tasks may include: entering transactions, reconciling accounts, analyzing financial data, and creating monthly financial reports. Hiring a professional bookkeeper with extensive experience in the field can save you time and improve your business decision-making.

Bookkeeping for a small business requires these three steps:

Track each transaction

The first step in any bookkeeping process is tracking each transaction. The bookkeeper needs to know what type of transaction it is, whether it’s a purchase, sale, receipt, or withdrawal. They must also determine which account to put it in. After entering the transaction, the bookkeeper must ensure that it is correct. This includes verifying the date, amount, and source of funds.

Accounting software like Xero and QuickBooks can help speed the process along.

With tools like Xero, bookkeepers create invoices, bills, receipts, and other documents. An experienced bookkeeper has the knowledge to help your business use these tools accurately and effectively.

Manage bank reconciliations

Tracking every transaction goes hand in hand with bank reconciliation.

Bank reconciliation is the process of matching or comparing the balances in your accounting records against the actual balance in the bank. If there are discrepancies, the bookkeeper must find out why. Some common causes include incorrect debits or credits, missing transactions, or duplicate entries.

The bank reconciliation process is pretty straightforward. First, it involves obtaining the bank’s ending cash balance and adding any deposits in transit from your business. Afterward, the bookkeeper subtracts any funds not yet cleared by the bank and adds or deducts any other items.

The second part of the reconciliation process involves obtaining your business’s closing cash balance, subtracting any bank fees, penalties, or NSF (non-sufficient fund) checks, and then adding any interest earned. In the end, your company’s adjusted cash balance should match the bank’s closing balance.

Prepare financial statements and reports

Financial statements provide information about your company’s performance over a specific period. Reports help you analyze your finances and make informed decisions based on the data.

Ideally, your business prepares financial statements at the end of each month or quarter. These usually include:

• An income statement (profit and loss statement)
• A balance sheet
• A cash flow statement

Visory’s bookkeeping services extend beyond tracking transactions, bank reconciliation, and financial reporting.

We also run accounts receivable, accounts payable, and payroll, so you can start with bookkeeping and add services as your business needs them.

What to look for in a bookkeeping service

A bookkeeping service may be a sole practitioner or a team. Either way, choose one that knows your type of business and, ideally, your industry, and that works with businesses of your size.

Ask who will do the work, how they keep your data secure, and what you will receive each month: reconciled accounts, a profit and loss statement, a balance sheet, and commentary on what changed.

Bookkeeping for your growing business with Visory

Visory runs bookkeeping, payroll, accounts payable, and accounts receivable for growing businesses, with a dedicated team and its AI, Delphi, overseen by that team. One flat monthly fee covers the services you choose. See pricing, or book a discovery call to talk it through.