Originally published February 7, 2019
If you'd rather be doing anything other than bookkeeping, we understand. Here are some hugely effective bookkeeping hacks for small businesses.
When you think about the top 1000 things you want to be doing for your business, bookkeeping probably doesn’t even grace the list. Bookkeeping most likely seems necessary claptrap, an administrative burden, and a frustrating time-sink. But it doesn’t have to be this way! Doing your own bookkeeping can give you valuable insights into your small business. With a few useful bookkeeping hacks, I will show you bookkeeping can be made easy and mistake-free.
It’s a skill that can help you bootstrap your business. When you are ready to hire someone else to do it for you, you’ll be armed with good knowledge about what’s involved, so you’ll know if it’s being done correctly.
Related: Why Small Business Bookkeeping is Important
Bookkeeping Hack #1: Small Business Bookkeeping Software Is Your Friend, But You Get What You Pay For
Bookkeeping is often maligned because of the data entry involved. However, today’s cloud-based accounting software takes most of the humdrum out of small business bookkeeping. If fact, when we do the bookkeeping for small businesses, we spend most of our time following up with clients to make sure we have all the necessary information.
Choosing software is easier than it sounds. In this world, you get what you pay for, so if you are starting or running a business you intend to grow, you should be looking at paid software such as Xero or Quickbooks Online. They will have most of the bells and whistles you need and you can integrate a bunch more software to tailor a solution to your needs. This software becomes the central platform where all your financial data gathers.
If you are a freelancer or solopreneur and are not into balance sheets, integrations and stuff like that, a free or low-cost alternative might be more up your alley. Check out Wave (free) or Freshbooks (if you need integrated time-tracking). These are great solutions if your needs are a bit simpler. Just be aware you may need to do a bit more manual entry and you may find the reporting lackluster for anything outside the box.
THE POINT: Choose a small business bookkeeping software based on what kind of business you are building. Don’t be cheap. Choosing a well-known piece of software is just fine, so don’t kill yourself over selecting the perfect one. None are perfect — you’ll just have to learn their quirks.
Set-Up is Everything
You should also refrain from skipping steps. Yes, the software is amazing, but spending the requisite time in setting it up properly is critical — it can go off the rails quickly. An ounce of prevention, begin with the end in mind; pick your cliche of choice. They are cliches for a reason: setting things up properly will be well worth the time.
Bookkeeping Hack #2: Do the Necessary Training for Your Small Business Bookkeeping Software
Whatever bookkeeping software you have chosen will have some training or information on how to get started. Spending time here is going to pay off for a long time, so it’s a good investment.
Bookkeeping Hack #3: Separate Small Business Bank Account
This is a mantra around here: Separate bank account. Separate bank account. It will be on my tombstone, I think. This is more common-sense than bookkeeping hack, but you’d be surprised how often people overlook the need for a separate bank account for their business.
Having a second bank account makes your bookkeeping life so much easier. I will explain why in the next section, but suffice it to say, if you do only one thing — do this. Leave your personal transactions personal and start treating your business like a different entity than you. Keep it healthy and cashed up.
Bookkeeping Hack #4: Start Fresh with Your Bookkeeping Data
When you start doing your bookkeeping, it’s best to start fresh. Go back to a date when you know your data is solid. This is the “conversion date” and could be the last time you filed a tax return or — better yet — when you started your business and everything was zeros. This will allow you to bring the data into your software.
Related: Accounting Reports Every Small Business Owner Should Get
Bookkeeping Hack #5: Bring in the (Clean) Data
If you set up a separate bank account and credit card from the beginning, you are a step ahead. You can export your transactions from your bank and import them into the software.
If you didn’t have a separate card, all is not lost. You will need to go through your transactions (in Excel or Google Sheets) and delete any personal transactions. You can import these transactions under a separate account called “due to owner” because I know after reading the first paragraph of this section, you rushed down to the bank and opened your separate bank account!
The nice part about most accounting software is they have direct bank feeds so you can categorize your transactions as they come in, meaning you will likely only have to do this import once. You can connect your bank feed, which helps decrease the amount of data entry you will need to do.
Bookkeeping Hack #6: Catch It Up
Now your data is in there, you can start to categorize transactions into accounts. Again, most software has you covered here with an out-of-the-box chart of accounts (a listing of accounts you can use for categorization). You are now going to take all of these transactions you imported and put them into buckets. Don’t get too fussy — mainly, you are trying to separate revenue and expenses into buckets that make sense.
THE POINT: Spend some time setting up your software properly. Do the training, so you pull in solid data and know-how to deal with it. Then just do it.
Bookkeeping Hack #7: Your Bank Balance Is Your Rock
In the world of bookkeeping, your bank balance is your North Star. If you don’t know your bank balance, you are living in a topsy-turvy world, my friend. Before you do any bookkeeping, you have to make sure the balance showing in your software is the same as your bank is showing.
Why is this important? If the balance in your software doesn’t equal your bank statement, you could be missing transactions or have duplicates. Either way, you are dealing with information that’s wrong, which means your books are wrong. Wrong is bad.
Need an example that’s a bit more real? Imagine — you send out some invoices, collect some payments, match those payments to your invoices in the software. Wait a second! Vandelay Industries hasn’t paid their invoice! You send out a reminder to pay and Vandelay tells you curtly they have paid it and the payment went through. You double-check your bank and the transaction was missed in your software. Whoops! It happens, that’s why we always check the bank balance.
THE POINT: Your bank balance is your totem (inception reference, anyone?). It’s going to anchor you to reality, so make sure it’s right before doing anything else.
Doing the Bookkeeping
It’s go time. Now you have caught everything up; you have a solid business-only bank balance and credit card. You have completed the training and your data is flowing into your accounting system automagically; it’s time to do your bookkeeping.
Set a Cadence
This is going to be different for everyone, but monthly is about the minimum you’ll want to do bookkeeping as it gets to be a bigger job if you leave it longer and you’ll delay it indefinitely after that point. When I did our books, I did it daily. I liked knowing what was going through the bank every day. It only took a few minutes and kept me understanding what the cash flow of the business was. Weekly seems to work for lots of people too. The key is to find a timing that works for you and stick to it.
Check Your Bank Balance
Step one is to refresh your bank feed and make sure it matches your bank. If so, you’re ready to go. That’s all I have to say about that, but I am going to write another sentence here because I didn’t want to have a whole heading with just two short sentences. That’s better.
Categorize / Match Your Transactions
You now have some new transactions and you will categorize these into the appropriate bucket and reconcile them. For money coming in, you are going to want to either match the payment to an invoice you have created or post it to revenue depending on what kind of business you have.
If you want to up your bookkeeping game and become audit-proof, you should look into the in-built functionality of Xero and Quickbooks to upload your receipts.
You can take this a level further by investing in a solution like Receipt Bank or Hubdoc to capture receipts using optical character recognition functionality. It will pull out data like GST/HST for you to limit data entry even further. If going down this route, you will first work in the receipts app, then publish to your accounting system for matching to your bank transactions.
Keep it fun and lively. Reward your hard work and next-level adulting. I like 85% chocolate and beer (not at the same time).
THE POINT: Get a bookkeeping routine and make it fun. Your early planning and training are going to pay off now. Put on some tunes, grab some beef jerky and slay those books!
Related: When to Hire an Accountant
The Next Level
I hope this article is helpful to de-mystify bookkeeping for you and gives you the confidence to do it yourself. We’re good at this stuff, so if you need some help getting started, want a bit more guidance and training or just can’t be bothered to do it yourself (you probably have a few other things to work on too), reach out. We live for it.
If you are looking for an accountant for your small business, we help make sense of the good information that’s now at your fingertips. We love working with small business owners like you, building the business of your dreams. Contact us for a free accounting consultation.