Bookkeeping: what you need to know for your business

Smart Office Services ABQ

May 17th, 2023

Bookkeeping is the recording of and tracking on a regular basis a business’s financial activities. These financial transactions are recorded based on a company’s accounting principles. Bookkeeping also involves keeping track of supporting documentation including bills, receipts, invoices, and purchase orders. Other duties of bookkeepers can include the following:

• Entering, coding, and paying bills
• Creating and sending client invoices
• Collecting Past Due accounts receivable (These are invoices of a company that have been outstanding for a certain period of time.)
• Reconciliation of bank and credit card accounts
• Maintenance of vendors for accounts payable and clients for accounts receivable
• Processing payroll

Accurate bookkeeping provides a business with a reliable understanding of its performance. Business owners can utilize this information to make strategic decisions and an idea to make revenue and income goals. So once you establish a business and it’s operating fully, spending extra time and money on maintaining proper records is crucial.

New business owners may overlook the need of keeping records of every financial transaction made. It is important to have accurate accounting records for a business to be sustainable. Proper bookkeeping enables a business to manage cash flow, prepare tax returns, budget, meet its financial obligations, plan investments, and so much more.

Bookkeepers at times may be expected to use problem-solving skills to resolve discrepancies. They also need to have communication skills to produce easily understandable reports for the layperson. They also need to work well with other team members and sometimes vendors, suppliers, and customers. Identifying the best candidate is valuable so that they work effectively in your business and have the attributes necessary to succeed.

Bookkeeping practices can differ between industries so you may want to look for an applicant that has experience specific to your area of work. For example, a bookkeeper that has worked only with a jewelry business may not have the experience or knowledge to do an equally good job for a clothing retail business.

Your recordkeeping system and organization software may also require additional training for your new hire unless they have experience in using them. Therefore, finding an applicant with experience in your recordkeeping system may be preferable.

Some example job interview questions to assess whether an applicant will work effectively in your organization can include:

• Tell me about your previous bookkeeping experience.
• What were your responsibilities?
• What are some financial reports that you prepared?
• What are some accounting systems that you used?

Bookkeepers do not need to have a license in the U.S. However, there are some voluntary certification programs that can provide a valuable gauge on the abilities of an applicant. Some licenses and certifications can include those provided by organizations such as the National Association of Certified Public Bookkeepers or the American Institute of Professional Bookkeepers. If they have a license from any of these groups, their knowledge and skills are up to date.

Bookkeepers can also have professional memberships. To obtain a membership, they must pass the membership criteria of a professional organization to join. Active membership can keep a bookkeeper current with best practices in the industry. So this may be an indicator that the candidate is committed to their profession. Some groups may even provide indemnity insurance that can offer more security for you.

There are several benefits of hiring a bookkeeper. As your business grows, it can be difficult to keep track of everything on your own. Having a trained bookkeeper can make sure that records are maintained in a timely manner and ensures your vendor relationships are unharmed through late payments.

A skilled bookkeeper can provide useful reports that provide information on the money you’re earning and how you're spending it. Understanding your cash flow can help you better understand where you’re doing well and where you may benefit from improvement.

A bookkeeper can also help you stay on top of customer invoices and billing reminders. This can guarantee a steady stream of funds to meet your current obligations and fund your business’s growth. If you are too focused on other business matters and neglect to bill your clients promptly, it may affect your cash flow. This can be addressed through bookkeeping services. Other benefits of a bookkeeper can include the following:

• Fewer data entry mistakes: bookkeepers can amend errors in financial transactions and also prevent them from occurring. This can prevent late payments and fees. Also, when your invoices are sent out quickly and accurately, you get paid more quickly.
• Numeral clarification: if you have questions about your profit and loss, a bookkeeper may help answer these questions and resolve any irregularities.
• Simpler tax season: having your records up to date can make filing taxes easier. You can avoid missing tax write-offs.

When first starting out, you may decide to maintain your records on your own. It may not be necessary initially, but as your business grows, it may take a substantial amount of time to continue doing bookkeeping on your own. When you hire a bookkeeper it can free you from paperwork and increase the accuracy, dependability, and timeliness of your records.

There are many methods to maintain your financial records. Full-time accountants are one option. However, they tend to be more expensive and less affordable. Smaller businesses may opt instead to hire a bookkeeper or outsource the job to a professional firm. DIY bookkeeping is one option that has already been discussed. Other types can include part-time, full-time, and outsourced bookkeeping.

Part-time

Part-time bookkeepers typically perform only basic bookkeeping duties and may require supervision and management. If you are able to juggle your job and some of your own bookkeeping, a part-time bookkeeper may be a great fit for your business. Oftentimes companies train an office manager or other employee with the capacity to become a part-time bookkeeper. This can increase affordability but at the cost of less accuracy than professional services.

Full-time

Full-time bookkeeping handles your daily accounting function. They keep your books in order and up to date. A full-time bookkeeper may be responsible for paying bills, billing clients, managing time sheets and payroll, and processing statements at the end of the month.

Outsourcing

An advantage of outsourcing is that it provides you the ability to customize the services you receive. You can obtain more advanced management accounts and controller functions. Also, if your business is growing, you may desire accrual-based accounting provided by outsourcing. Accrual basis accounting is where you record a transaction as it occurs even if you haven’t received payment.

Part-time bookkeepers' rates can vary widely. Hourly rates for part-time bookkeepers can average around $20/hour.

Full-time bookkeeper salaries can vary between $35,000 to $55,000 plus benefits. In higher cost of living areas such as New York or Los Angeles, the salaries can be around $70,000.

Outsourced bookkeeping services average around $500 to $2,500 a month.

There are two main types of bookkeeping: single-entry and double-entry. Single-entry is often utilized by sole proprietors, small startups, and companies with minimal transaction activity. This type of bookkeeping maintains a cash sales journal, cash disbursements journal, and bank statements. Transactions are recorded as a single entry.

Double-entry bookkeeping involves recording transactions in two accounts as a debit or credit. The number of debit entries needs to match the number of credits. This is more advanced and ideal for enterprises with accrued expenses. Documents needed for double-entry bookkeeping include journal entries, general ledger, inventory, cashbooks, accounts payable/ receivable, loans, and payroll.

Though they may appear similar, accounting and bookkeeping are not interchangeable. Accounting is the term for all processes related to recording a business’s financial transactions. Bookkeeping is only a part of accounting. Bookkeeping focuses on the administrative side of a business’s past and present financial transactions. Accounting instead is more subjective and uses data from bookkeepers.

Bookkeeping responsibilities include:

• Recording financial transactions
• Listing debits and credits
• Preparing financial statements
• Payroll processing

Accounting responsibilities, on the other hand, include:

• Reviewing and analyzing financial statements
• Entering adjusting entries
• Performing audits
• Filing relevant tax returns

There are many ways to manage your financial transactions including the various bookkeeping methods and accounting services. Which one works best for your company will depend on the size of your business and your budget.