Bookkeeping is the foundation of a successful small business. By tracking income, expenses, and financial records accurately, you’re able to make better decisions, stay compliant, and grow confidently. But how does bookkeeping actually work in small businesses? Let’s look at key examples of bookkeeping for a small business and how that can transform your day-to-day operations.
Examples of Bookkeeping for a Small Business
Let’s look at some examples of bookkeeping tasks for small businesses and how they impact daily operations:
1. Managing Accounts Payable and Receivable
Example:
A local coffee shop tracks payments to vendors for beans, milk, and other supplies while also recording customer payments for catering services. This helps the owner maintain a clear view of outstanding bills and incoming revenue.
2. Categorizing Business Expenses
Example:
A freelance graphic designer keeps records of expenses like design software subscriptions, marketing efforts, and travel costs. This allows for better budgeting and maximizes potential tax deductions.
3. Payroll Management
Example:
A boutique clothing store uses bookkeeping to calculate employee wages, file payroll taxes, and ensure accurate paychecks. With QuickBooks Online, payroll is automated, saving hours of manual work each month.
4. Inventory Tracking
Example:
A home-based e-commerce business selling handmade jewelry uses bookkeeping to track inventory costs, monitor stock levels, and calculate the cost of goods sold (COGS) for each product. This ensures accurate pricing and profitability.
5. Preparing Tax-Ready Financial Statements
Example:
A landscaping business uses bookkeeping to create profit and loss statements, balance sheets, and cash flow reports for tax season. This ensures compliance and eliminates the stress of last-minute tax prep.
6. Monthly Financial Reconciliation
Example:
A personal trainer reconciles their business credit card and bank account monthly. This process identifies discrepancies, such as double charges or missed payments, ensuring accurate records.
“Many small businesses overlook the importance of reconciling their accounts monthly, not just annually. A simple practice like comparing your bank statements to your books every 30 days can uncover errors or unauthorized charges early, saving you money and headaches in the long run.”
— Paul Yee, Co-owner of NorthStar Bookkeeping
These examples show how bookkeeping directly supports the operational and financial health of small businesses, making it an indispensable practice. Whether it’s tracking income or preparing for taxes, accurate bookkeeping lays the groundwork for long-term success.
What Kind of Bookkeeping Is Used by Small Businesses?
Small businesses typically rely on two types of bookkeeping:
- Cash-Based Bookkeeping: This method records income and expenses when money is physically received or spent. It’s simple and great for very small businesses or sole proprietors.
- Accrual-Based Bookkeeping: Here, income and expenses are recorded when they’re earned or incurred, regardless of when cash changes hands. This is ideal for growing businesses that need a clearer picture of their financial health.
For example, if you run a retail business, cash-based bookkeeping works well when tracking daily sales. On the other hand, a service-based LLC might benefit more from accrual bookkeeping to align project timelines with financial forecasts.
Related Article: What Financial KPIs Should A Small Business Owner Track?
Does an LLC Need Bookkeeping?
Absolutely! Even single-member LLCs need accurate bookkeeping to:
- Track income and expenses for tax filings.
- Keep personal and business finances separate to maintain limited liability protection.
- Generate financial statements for potential investors or lenders.
For example, imagine you own a small photography LLC. Accurate bookkeeping helps you separate personal purchases from business-related expenses like camera gear, travel, and client invoices, ensuring compliance and better profitability analysis.
Related Article: Do Small Businesses Need to Keep Books?
Bookkeeping for a Small Business with QuickBooks Online
QuickBooks Online is an important tool for small business owners. Here’s how it simplifies your bookkeeping:
- Automatic Bank Reconciliation: Sync your bank accounts to match transactions and catch discrepancies automatically.
- Expense Categorization: Quickly assign expenses to categories like office supplies, marketing, or travel, which helps with tax deductions.
- Invoicing & Payments: Create professional invoices, send reminders, and accept payments directly through the platform.
- Customizable Reports: Access real-time profit and loss reports to track growth and adjust your strategy.
For example, a small bakery using QuickBooks Online can easily track daily ingredient purchases, manage payroll for part-time staff, and create monthly financial statements for tax preparation—all in one place.
Let NorthStar Bookkeeping Make Your Bookkeeping Stress-Free
If bookkeeping feels like a daunting task, it’s time to partner with professionals who can streamline the process. Let NorthStar Bookkeeping take care of your financial records while you focus on growing your small business.Schedule a free consultation today to see how NorthStar Bookkeeping can help your business thrive.