Bookkeeping is one of the least exciting tasks of running an online business. Because of its monotonous nature, it’s often a task that business owners avoid. But do you know what’s worse than spending hours on your books?
Your business is failing because you neglected to keep track of your finances. Or realizing that you’re not making a profit because you weren’t paying attention.
Take an e-commerce business, for example. You set up your store and start receiving orders right away. You offer free shipping because shipping is expensive, and you don’t want shoppers to abandon their orders once they see the shipping costs.
Then, you pay your shipping company and realize that you’re actually losing money on your orders … because you didn’t track the expenses.
Is bookkeeping so complicated that you need to hire a professional to do it? Or can you keep track of income and expenses yourself? Let’s take a look at bookkeeping for your online business, what tools are available to do it yourself, and the situations where you might want to hire a bookkeeper.
What is Bookkeeping Anyway?
Bookkeeping for a business is the process of regularly organizing and recording all your financial transactions. Its purpose is to keep track of your income and expenses and make sure the ‘books balance.’ In other words, to make sure you don’t have more money going out than you have coming in.
- Recording sales invoices
- Monitoring your accounts receivable
- Billing clients for items sold or services provided
- Verifying and recording supplier invoices
- Paying supplier invoices
- Preparing and organizing employee payroll and government taxes
- Recording depreciation of assets
- Producing financial statements for tax season
Most people, including professional bookkeepers, use online software to keep track of business finances. But even with the software, you will require some basic knowledge of business accounting.
Why Is Bookkeeping Important?
Small business owners are notorious for being good at selling their products or services, bringing in customers, and creating a marketing strategy, while neglecting to keep track of finances. Without financial clarity, you can run into cash flow problems, neglect to request customer payments, or forget to pay your bills.
Often, you can’t even determine whether your business is turning a profit. Over time, this will lead to business failure.
If you want to see long-term business success, you must either hire a bookkeeper or start doing your books.
What Do Bookkeepers Do?
Bookkeepers follow the same financial recording methods that accountants do. They collect, organize, and track receipts, invoices, and financial transactions. Most bookkeepers use online software to make this job easier.
There is a whole other set of tasks that professional bookkeepers are responsible for:
- Train you to enter transactions in accounting software
- Resolve errors or problems in your finances
- Improve your financial workflow by using things like Point of Sale tools
- Streamline your payroll
- Track investments and depreciation of assets
- Save money for tax payments
- Collect customer invoice payments
- Prepare your financial statements for tax season
Bookkeepers keep your business finances operating smoothly so you can focus on running your business.
Accounting vs. Bookkeeping
Do you just need a bookkeeper for your online business? Or do you also need an accountant? What’s the difference?
While the terms are often used interchangeably for the same service, they’re not. Bookkeeping is a subset of accounting. Anyone can do the bookkeeping (including you), but not everyone can do the job of an accountant.
Bookkeepers keep track of day-to-day financial operations. On the other hand, accountants are financial experts. They are registered members of a professional body. An accountant will use the information in your books to provide financial advice and file tax returns. Accountants usually offer advice and make adjustments a few times a year.
Critical Bookkeeping Accounts For Your Online Business
All your business transactions will pass through your cash account. Therefore, any money that goes in or out of your business should be recorded in this account.
This is the space where you keep track of all incoming sales revenues from your business.
This account is where you will keep track of invoices you have sent to customers that aren’t yet paid. This account is critical to track who has paid you and who is past due.
It’s essential to know how much stock you have and what needs to be ordered on an ongoing basis.
This account keeps track of the bills you pay. A meticulous record will make sure your bills are paid on time.
This account is vital because office supplies tend to leak revenue if you aren’t careful. It’s easy to think that a box of pens or staples doesn’t matter, but they add up over time. Therefore, it’s important to track them as part of your business expenses.
This is the most significant expense for most businesses. Keeping track is essential to ensure your employees are paid accurately and on time and ensure all payroll taxes are paid and the appropriate government documents are filed. Not doing so will create a significant headache during tax season.
This account keeps track of any profits you have put back into your business. It’s cumulative and shows a running total of how much of your earnings are maintained in the business. Retained earnings statements will be necessary for investors and lenders who want to visualize your company’s performance.
Other standard bookkeeping accounts:
- Loans payable
- Owners’ equity
- Capital account
- Spending account
Essential Bookkeeping Tips
Keep Track of Absolutely Everything You Do With Your Business
This means absolutely everything: all income and all expenses. Keep your receipts. By doing this, you will have a comprehensive view of your business’s financial status at any point in time.
You will also have physical proof of your transactions if you are ever audited or taken to court. If your business is located in the US or Canada, you are required by law to keep records of your business transactions for seven years.
All Your Transactions Should Go Through Your Business Account
Any money you receive or spend should go through your business bank account or your business’s petty cash (which should also be meticulously recorded and tracked). Running occasional expenses through your personal account will result in an inaccurate bank statement for your business, or you won’t have proof of where you spent the money. Neither of these situations is beneficial.
Keep Your Business and Personal Finances Separate
This is standard advice for business owners, but easier said than done. Using the same bank account causes confusion and makes it tempting to spend business income on personal things. But, of course, you are running your business to make money.
So, the best way to separate accounts is to draw income from your business account as wages into your personal account. This keeps your business account tidy.
When to Hire a bookkeeper
Chances are, you already know whether you’re capable of doing the bookkeeping yourself or need to hire someone to do it. If your company is growing and you’re struggling to track your finances or thinking about selling. Maybe you’re just sick of spending hours every week staring at QuickBooks.
Luckily, you have a few options for hiring a professional bookkeeper. Unless you have more than 30 employees in your business, there’s no benefit to hiring a full-time in-house bookkeeper. This gives you three options: a freelancer, a firm, or a remote solution.
If your business finances are relatively simple and you are ok with your bookkeeper not being available to you every day, this is probably the most economical option.
This is a more expensive option but gives you constant access to your bookkeeper and avoids service gaps. The downside is you will be working with multiple different bookkeepers with different skills and experience levels.
An online bookkeeping solution will use cloud-based software to do your books. Because a lot of the work is automated, it’s more affordable than hiring someone to do it by hand. If you don’t have many transactions, this is an excellent option for most small businesses.
Also, since most remote bookkeeping services charge a flat rate, you don’t have to worry about racking up a huge bill.
Recommendations for Online Bookkeepers
If you’re not an accountant or bookkeeper, it’s probably wise to hire one to keep your accounts in check. However, it’s simple enough to hire a professional service online.
Bench.co is an online, professional bookkeeping service for small businesses. They provide you with a dedicated bookkeeper to manage all your business finances. Your financial statements will be provided monthly, and they offer support for tax season.
Bookkeeping is critical to the success of your online business. Mistakes in your books could result in business failure. Regular bookkeeping or hiring a bookkeeper will help you keep track of your business’s financial status so you can continue to grow your bottom line.