Small business bookkeeping becomes more important as your business grows. As a business owner, you are likely signing off on tens or hundreds of transactions monthly. Once your business scales, it can easily hit thousands in both incoming revenue and expenses.
Without keeping a record of each transaction, you are literally running your business off the head. You have no insight into your business’s financial health, no documentable information for tax preparation and filing, and you can’t even track whether your balance sheet is as it should be.
In this article, we’ll explain how to avoid that with bookkeeping, the best tools to use, and the mistakes to watch out for.
The typical small business bookkeeping involves recording your financial transactions, reconciling each one, tracking necessary accounts, and generating your financial report.
Let’s break each down below.
This is where you log every sales payout, software subscription fee, and inventory deposit into your accounting ledger. So long as it enters or leaves your business account, by whatever means, you need to record it.
Other bookkeeping examples of transactions to record include:
Here, you assign each transaction to a category to make your financial reporting easier. For instance, payment for the electricity bill to run your business is considered a utility.
Other common transactions that are on your bookkeeping worksheet should look like this:
Reconciliation means cross-checking your bookkeeping records against your actual bank and credit card histories to find errors. Errors can include duplicate payments for the same service or a transaction history on your bank account that is missing from your records.
Accounts Receivable means the money a customer owes your business. You record the transaction as “Money owed” until payment arrives.
On the flip side, Accounts Payable is the money your business owes others. That includes payment to suppliers, vendors, contractors, and other businesses for goods or services received on credit. It shows on your bookkeeping record as a liability until paid.
If you are running a team of two or more employees to manage your ecommerce business, your bookkeeping records should contain salaries, taxes, pension contributions, and other deductions.
A proper payroll record ensures your employees are paid adequately and also keeps you legally compliant.
Financial reporting is part of accounting basics and relies on your bookkeeping records.
Every financial report shows the health of your business finances, whether your expenses are canceling out your profits, where unexplained inflows or outflows occur, and which expenses are taking more money from your account.
You can apply insights from these reports to optimize your decision-making and identify which products generate the most profit and are in high demand.
Methods for small-business bookkeeping include cash-basis, accrual-basis, single-entry, and double-entry.
Cash-basis bookkeeping is when you record transactions only when a financial commitment has already been made.
For instance, let’s say you complete a job today for ₦200,000 but get paid next week. You will record it next week when the cash arrives. This method is best for freelancers and small businesses with fewer financial operations.
Limitation: Shows only your immediate cash flow but does not reflect money owed or money to be received, making it difficult to see where your business stands financially.
You record revenue the moment a sale occurs and expenses the moment you incur them, even when there’s no financial commitment yet.
Limitation: In cases where a customer delays payment, and you handle multiple transactions daily or monthly, you might accidentally overlook unreconciled transactions.
Our team at EcomBalance uses the accrual-basis bookkeeping method and is trained to help you properly pivot your records to account for this limitation.
Get a personalized bookkeeping strategy today to see how we can optimize your business’s bookkeeping with the same method as well.
Single-entry records all your transactions, both debit and credit, on a single side, vertically. Useful if your business records very few non-complex transactions.
Here’s what that looks like.
The double-entry system clearly separates credit and debit into two different lines. This gives you greater clarity and allows you to track which flows in or out faster. Useful if you manage multiple transactions daily.
Here’s what a Double Entry Ledger Layout looks like.
While you can use Google Spreadsheet and Excel to track transactions manually, they are only helpful on a small scale. Besides, manual tracking can result in numerous financial errors that might misinform your decisions.
To avoid that, you need bookkeeping tools. They automate your data entry, categorize transactions, and generate financial reports.
Let’s quickly review a few of the best bookkeeping tools you can use.
Link My Books automatically pulls your payouts from channels such as Amazon, eBay, and Shopify. Then it breaks down every gross number from these pulls into clean transaction categories that your accounting software can report on.
QuickBooks allows you to build a detailed chart of accounts to track your assets and liabilities. However, it requires manual categorization or third-party plugins to break down gross transactions, unlike Link My Books.
Wave is more laid-back and offers free invoicing and transaction logging for early-stage small businesses. Good if you have low transaction volumes, but struggles to handle complex multi-currency payouts or heavy marketplace inventory.
Of course, using these tools to automate your processes still takes time and requires expertise that your team might not have.
That’s why you need EcomBalance, a credible e-commerce bookkeeping service provider. Our team handles transaction reconciliation, monthly financial statements, and accurate books, so you can focus on growing your store.
Speak with our team today to optimize your financial records.
These are some of the bookkeeping mistakes that can ruin your records and finances.
It’s often tempting to accept quick deposits or transfer money from your personal account to secure business resources, or use a business account to meet personal needs.
That complicates tax planning and IRS audits, and you might not be able to track your true operational cost at all. Avoid it by ensuring every transaction occurs only on and from your business bank accounts and credit cards.
Piling up your transactions makes it impossible to catch duplicate software integration errors or spot unauthorized credit card charges before bank dispute windows close. Instead, set your reconciliation cadence to weekly, especially if you have high-volume transactions.
If seasonal growth has left your ledger unmanaged for months, use a structured Catch-Up and Clean-Up bookkeeping service to properly backdate your transactions.
Manual bookkeeping is effective but only works for businesses with low transaction volumes. Once your business scales, you might end up mixing up values on your spreadsheet.
That’s why you should switch to an automated bookkeeping software like Link My Books or an accounting platform that also offers bookkeeping, like QuickBooks.
Keeping records of every transaction in your small business looks like small work until records start getting mixed up, reconciliation lags by weeks, and your finances no longer balance out.
When that happens, it means you need a provider that offers top online bookkeeping services.
These are the things to look out for before you make that decision:
The busier your business gets, the more likely you’ll miss out on recording and reconciling transactions. That’s only going to do more harm than good, such as leaving your sheets unbalanced or failing to catch duplicate payments in time.
Financial reports contain insights that help you make appropriate business decisions. A good service provider has the necessary bookkeeping resources and knows what to include in your report to ensure you focus on what matters.
Tax season is usually arduous if your records are in disarray. A bookkeeping service provider can help you put everything in place to ensure your business is ready to file taxes as appropriate and comply with regulatory standards.
These are some of the questions other small business owners are asking.
A small business should keep records that include sales receipts, purchase invoices, bank statements, cash records, and expense receipts such as rent, transport, and utilities. Others include payroll records, accounts receivable and payable records, loan documents and repayment schedules, tax filings, and inventory records.
If you use bookkeeping software yourself, you will typically spend about $0 to $275 per month. If you outsource to a service provider, you might pay $100 to $500 or more per month, depending on your business size and needs. Outsourcing is more cost-effective because it saves time, reduces errors, and removes the stress of managing everything yourself.
Bookkeeping is the process of recording financial transactions, while accounting is the process of interpreting, analyzing, and reporting those records. Bookkeeping focuses on recording sales, expenses, and payments, while accounting uses those records to calculate profit, assess tax obligations, and evaluate your business’s financial health.
Yes, you can handle bookkeeping if you only have a few daily transactions. However, it can become time-consuming, and errors may occur as the business grows. At that point, you need a bookkeeping service provider.
Bookkeeping, even for a small business, is a lot of work. You end up having to track inventory, interact with customers, and keep a record of every transaction. And it gets to a point where you can’t keep up as your business scales.
That’s where EcomBalance comes in.
Our team of bookkeeping experts offers:
