The Ultimate Bookkeeping Guide for Business Owners

Ah, the steady heartbeat of a well-run business. You know what we mean. Employees buzzing along, applying their unique challenges to the day’s tasks. Emails flying about, responding to new orders or customer inquiries. Payments going in and out, almost like deep breaths. You look at your books, and the proof of healthy business growth looks right back at you. What business owner doesn’t love this feeling? Well, whether you realize it or not, you can trace a great deal of this steady heartbeat back to one business function that lies at the center of the work you and your team does every single day. Let’s talk bookkeeping.

Any experienced business owner probably already recognizes the sheer importance of the bookkeeping tasks you need to complete. And even more than that, how critical it is that you keep your books accurate and up-to-date. But still, depending on what your business does, its size, and how new you are to running a business, your exact needs may vary.

When done right, bookkeeping doesn’t just help your business operate on a day-to-day basis. It can also help you spot operational improvements, save money, and pinpoint opportunities for growth. But many business owners don’t have the expertise—or interest—to really optimize their bookkeeping process.

It’s true. There aren’t too many of us out there who really love a good set of books. Not too many eyes light up when they open up an Excel spreadsheet or Google Sheet. Only a few jump for joy over a well-balanced balance sheet. Most don’t receive butterflies in their stomach from working in accounts receivable.

But we do! As a full-service tax representation and mediation firm, we’ve worked with thousands of businesses and individuals since 2001. Our team diligently manages the bookkeeping, payroll, and tax preparation for small businesses and large companies alike. We look at bookkeeping as art with numbers, and our ‘artists’ are incredibly well schooled and armed with the greatest brushes to paint your business records on the best possible canvas. 

Our clients have hired us to provide turnkey solutions for their business challenges to leave them free to do what they do best. You know, grow, run, and innovate their businesses. And whether you’ve had a bookkeeper for years that you haven’t quite meshed with, or you’re brand new to all this, we get it. We think you deserve to have all the information about bookkeeping that you might need—so you can make the bookkeeping decisions that fit your business.

Well, we’re here with the complete bookkeeping guide for business owners like you. We’re going to break everything down to the basics, as well as dive into the nitty-gritty details later on. From answering questions like “What is bookkeeping?” to explaining what questions you need to ask a bookkeeper before hiring them, there’s a little something for everyone.

What is bookkeeping?

It shouldn’t come as a surprise that the term “bookkeeping” actually refers to quite a few individual—but related—business functions. So the person or team handling your books have a fair deal to work on, depending on what your business does.

But in short, bookkeeping relates to financial transactions. Any recording, storing, retrieving, and calculating of financial transactions falls under the umbrella of bookkeeping. And they can just as readily apply to a business as they might to an individual, nonprofit, or government entity.

If it has something to do with money moving between hands or accounts, it probably counts as bookkeeping.

What does bookkeeping entail?

General definitions are good, but specifics are better. So, let’s get into a bit more detail about what types of business transactions, accounts, and functions fall under that bookkeeping umbrella.

This section contains some basic business terminology to clarify the types of bookkeeping tasks you may deal with at your company. If you’re a long-time business owner, you may feel comfortable skipping this section. (Unless you’d like a refresher!) If you’re a new business owner, we’d recommend reading on anyway. We’ll build on some of these definitions more later on.

Bookkeeping Terms

Accounts Receivable

How does your business earn its money? Via retainer or commission? Through product sales? Perhaps you run an hourly consulting service or auto shop and bill hourly?

Regardless how you receive your money or goods from customers, vendors, what have you—at some point, you actually have to receive them. Most business transactions don’t actually complete in one fell swoop. Instead, for a period of time, somebody will owe somebody else. Perhaps it’s the equipment you purchased or the money you’ve billed that has yet to be paid.

Your accounts receivable are a certain type of asset account on your balance sheet that represents what somebody else owes you in the short-term. It accounts for your transactions, and what assets you can expect to come your way.

Accounts Payable

As we just walked through in accounts receivable, few business transactions occur and complete in one swift movement. Usually something from the exchange is outstanding, like you have to pay an invoice within 30 days or you need to ship out a product that a customer placed.

On the balance sheet, accounts payable represents those outstanding assets you have yet to pay. Instead of money, goods, or services owed, this asset class represents the money, goods, or services you owe.

Profit and Loss Statement

One of many financial statements used to summarize your business’s activities, the Profit & Loss Statement (aka P&L, Income Statement, or Statement of Operations) summarizes certain business activities over a period of time. Specifically, this statement will account for your company’s revenues, expenses, and profits/losses over a period of time. For example, a P&L may break down profits and losses over a specific week, quarter, or year.

Profit and loss statements serve a very good purpose. They can provide good evidence as to certain unhealthy revenue or expense trends for your business, such as overspending, that you can then seek out ways to stop or reign in. And they allow for a bird’s eye view over time to see how your company has grown.

Balance Sheets

Much like the Profit and Loss Statement, a Balance Sheet provides a snapshot of one aspect of the business’s finances. This sheet displays a company’s total assets and liabilities in one place.

Let’s go into just a bit more depth on that. What counts as an asset? Well, money, for one. Anything in your accounts receivable, bank accounts, etc. Your assets include physical items, such as inventory, equipment, even physical real estate or company vehicles. On the other hand, liabilities include anything you owe. So, if you own a company car but owe money on a lease or car loan, then this counts as a liability—so the car would actually count toward debt rather than assets.

General Ledgers

When you perform any financial transaction, you need to mark it down. And the general ledger (also known as a nominal ledger), serves as a centralized home for all accounting data from all subledgers.

What’s a subledger? We’re glad you asked. A subledger holds the accounting information from any number of business transactions or accounts. Things like accounts payable and accounts receivable, fixed assets, purchasing, and other projects. Every account an organization holds counts as a ledger account, and the whole group of accounts together makes up the general ledger.

Receipts

A business needs to account for each and every purchase. Heck, an individual taxpayer needs to account for each and every purchase. However, the difference falls in how many individual income streams a business might have than an individual.

An individual may have one primary income source or a few. With fewer income streams to keep track of, it makes sense that one may not have a ton of business expenses. But a business earning money from three or four thousand-odd customers likely has a lot more to account for. From utility payments to commercial office rentals, supplies, and a host of other costs that might factor in to their overall revenue.

Checks

Fortunately, it’s easy enough to keep track of one’s checks in today’s modern world. Not only do you have your regular checkbook, but you have digital accounts to account for. Regardless, keeping track of all your checks falls squarely into the realm of bookkeeping.

Banks & Credit Card Statements

In your bookkeeping work, all your bank statements and credit card statements need accounting for. These totals include not only the basic transactions, but the total amounts received in sales and any fees charged to your account. Additionally you should include any amounts refunded to you or to your clients on these accounts.

Who handles bookkeeping?

Depending on the size and nature of your business, just about anybody might handle your bookkeeping tasks on a day-to-day basis. If you’re self-employed, there’s a good chance you’re handling your books on your own. Conversely, multi-million-dollar companies may have a team of a few people—or a few dozen.

Bookkeeping Breakdowns, Based on the Size of Your Businesses

Here’s an inside look at how bookkeeping looks, and what it entails, based on the size of your business.

Bookkeeping for Small Businesses

As a small business owner, you know the importance of your books to the day-to-day operations at hand. And depending on the size of your business, you may be handling quite a bit of the bookkeeping yourself.

If you’re self-employed, you’re probably managing your books on your own. This includes processing payments, invoicing for your services, etc. Many self-employed folks do get some assistance, though, via bookkeeping apps or turnkey bookkeeping services.

Other small businesses with 5-25 people may designate these bookkeeping tasks to an individual who has other responsibilities as well. It’s common for employees at small businesses to wear many hats, so a receptionist or administrator, manager, accountant, or the owner might each have responsibility.

Bookkeeping for Medium Sized Businesses

Medium sized businesses typically will have enough folks on staff to allocate the bookkeeping tasks. For that reason, it’s less likely the work will fall on the owner or an assistant.

Instead, medium sized businesses usually will employ a very-small-to-small team to handle the books along wit other finances. They’ll likely have an accountant or finance professional on-hand to manage the books, as well as to handle other issues, like payroll.

The type of business may dictate the exact details more than the employee count. For example, a midsize business with many employees out in the field or in warehouse might still utilize a centralized administrator to handle bookkeeping tasks. On the other hand, a business of the same size with a large sales team might have more transactions and ultimately warrant a dedicated bookkeeper. Regardless, medium sized businesses may instead choose to outsource their bookkeeping and/or payroll tasks to an outside service to save on overhead costs.

Bookkeeping for Large Businesses

Large companies almost always have multiple people on the team that handles bookkeeping tasks. They really have to! There’s just far too much for one person to handle, especially if they’re wearing multiple hats. The larger your business gets, the more specialized each employee or slice of your business will get, too.

Large businesses, depending on the size, may have a large, centralized team, or multiple smaller teams dedicated to individual departments. Often times, these departments will handle much more than just the books—dealing with payroll and all other aspects of finance. However, many large companies choose, instead, to contract with external teams to manage all aspects of their finances. This can help them save on overhead and benefits, while typically reducing costs to a specific retainer or consistent hourly rate.

Common Bookkeeping Mistakes (and What They Can Cost You)

Making mistakes in your books can cost you. Consider this a small and incomplete list of the reasons you absolutely must eliminate mistakes wherever possible.

• Unaccounted For Revenue: When you don’t act with care, you can unintentionally lose track of sales or invoices. This can leave you unpaid for what your clients or customers owe you. On the other hand, you may end up with revenue you haven’t reported to the IRS, but your clients have. While easily resolved, you could still find yourself on the wrong side of an audit.
• Basic Miscalculations: Miscalculations happen. You don’t carry the one, or you add one too many zeroes into the mix. However, these miscalculations can cost you time and worry. You can end up with angry customers or balance sheets that don’t line up. Even with spreadsheets or accounting software, mistakes happen.
• Lack of Tax Preparedness: Your tax return is only as thorough and complete as your finances are. When you omit details or lose track of your paperwork, you can end up on your heels when it’s time to file your taxes. This can lead to an audit, or even worse, a tax penalty that puts your business in debt.

Questions to Ask a Bookkeeping Company (Before You Hire Them)

While some business owners make decisions based on recommendations, you’ll want to ask any prospective bookkeeper some questions before you bring them on board. Below, we’ve collected a few questions you should consider. This list isn’t exhaustive. Instead, we hope you’ll use it as a launching pad to ask even more great questions, tailored to your business.

1. What kinds of clients do you usually work with?

People and companies that manage books come in all shapes and specialties. And what works perfectly for a mid sized business may not work quite as well for a small business. At the same time, some bookkeepers act more like accountants, while others focus mostly on the transactions and data entry. The breadth of the work at hand will play a factor in the success of your partnership, so you should understand what their expertise is before hiring them.

2. What are your qualifications and registrations?

Most bookkeepers have a minimum set of educational requirements, which typically will include a college degree and often even CPA credentials. What’s more important, however, is that they also have a working knowledge of the laws within your state and local area.

Not every CPA will be the best fit for your business. After all, credentials are just one part of the holistic relationship you’ll look to develop when hiring—or outsourcing—your bookkeeping. However, getting an accurate picture of a professional or service’s background will really help your decision making process.

3. How do you handle client communication?

Not all bookkeepers communicate in the same way or at the same rate. Finding one that matches your own preference and business needs should become a priority.

While most professionals may have some flexibility to tune themselves to your business style, that tuning has a limit. If they aren’t a good fit, they aren’t a good fit. And they won’t want to enter a partnership that they already can tell won’t work well for either party. Just ask what their communication preferences are and what their processes are around deliverables and response times. Hopefully, their answer will give you both some clarity.

The Value of Going Digital

In the twenty-first century, you need to go digital.

We get it, we get it. Trust us, we get it. We got our start in 2001 when legacy systems were the bread and butter of nearly every company. And we know how challenging it can be to move all of your paper files online. But that’s just what business demands.

If you’re looking to grow your business, making the move to digital file management makes a ton of sense when you’re bringing on a new professional or team to manage your books. Not only will you have an easier time communicating over shared documents, but it will allow that person to truly provide their services remotely.

So, you should always look for a bookkeeping company that specializes in bringing your vast records online. (By the way, we do this. And we do it well.)

Bookkeeping FAQs

1. Can’t I just use software?

Yes, you can! Depending on your business, software can help you immensely with managing your books. Especially for small businesses and the self-employed, your margins may really only warrant a minimal expense. So, paying for something that can help you with the basics makes the most sense.

However, these tools really only handle the minimum. As your business grows or as you deal with more complex business, you’ll want to upgrade in some way, shape, or form. While you may still prefer software, you’ll likely need to delegate the task—and hiring a bookkeeping service or professional can help.

2. Can my accountant handle my bookkeeping?

Maybe! CPAs typically have the background and proclivity to manage books, should they please. The trouble you may run into when seeking out a CPA is that most prefer to handle other financial business.

Hiring a finance professional might help you get around some of these gray areas, as long as you’ve made it clear what the role entails. However, this also serves as another clear benefit of hiring an external service. You can bring them on to deal specifically with your books, but depending on the company, they can also potentially manage your payroll, taxes, and other financial needs. And you don’t even have to cover our insurance!

Put Better Bookkeeping on the Books

It’s time to put better bookkeeping on the books. Now that you know just about everything you will ever need to know about bookkeeping, you can start making some business decisions.

You may determine that you should reallocate the day-to-day finances away from your manager and bring someone on full-time. On the other hand, you may discover that you’ll get the most savings if you hire a bookkeeping company to manage everything for you. Or, if you just started your business, perhaps you’ve learned a bit more about the road ahead—and how you can manage it.

Whatever your plan may be, get in touch. We love this stuff, whether it’s bookkeeping, payroll, tax filing, or anything else in between. We can help guide you to the right solution for your business and plan for what’s to come.