Basic bookkeeping for small business

How to do bookkeeping

Bookkeeping is the foundation of sound financial management for any small business. A well-structured process ensures accuracy, compliance and clarity in financial decision-making.

Here's an overview of the key steps involved:

1. Setting up a chart of accounts

The chart of accounts is a structured list of all the financial accounts used by a business. It categorises transactions into five main types:

• Assets – what the business owns (e.g., cash, inventory, equipment).
• Liabilities – what the business owes (e.g., loans, accounts payable).
• Equity – owner’s interest in the business.
• Income – money earned from sales or services.
• Expenses – costs incurred to operate the business.

Why it matters: A well-organised chart of accounts makes it easier to track financial activity, generate reports and ensure consistency in record-keeping.

2. Recording transactions

Every financial activity, whether it's a sale, purchase, loan repayment or salary payment, must be recorded accurately. This includes:

• Income from customers.
• Expenses such as rent, utilities and supplies.
• Asset purchases like equipment.
• Liability payments such as loan instalments.
• Equity changes like owner contributions or withdrawals.

Use accounting software or ledgers to record these transactions promptly and correctly.

3. Reconciling bank statements

Regular reconciliation ensures that your recorded transactions match your bank statements. This helps identify errors, omissions or fraudulent activity early. It’s typically done monthly and involves:

• Comparing bank statement entries with your records.
• Investigating discrepancies.
• Adjusting entries as needed.

4. Generating financial reports

Financial reports provide insights into your business’s performance and financial health. Key reports include:

• Profit and loss statement (income statement) – shows revenue, expenses, and profit over a period.
• Balance sheet – summarises assets, liabilities, and equity at a specific point in time.
• Cash flow statement – tracks the movement of cash in and out of the business.

These reports are essential for decision-making, tax reporting and securing funding.

Not confident about doing your own bookkeeping?

If the prospect of doing your own business bookkeeping fills you with dread or you’re not confident about doing it yourself, an online course in bookkeeping basics might help. When you see how everything falls into place you could feel more positive and confident.

Alternatively, you could decide to delegate the task to a professional bookkeeper. The time and stress you save by handing over your record keeping might make financial sense. New cloud and fixed-fee options can also keep costs relatively low and easy to factor into your budget.

Whatever you do, don’t make the biggest mistake of all – forgetting that accurate bookkeeping is the key to business success.