If you are familiar with Oze, you’ll know we talk a lot about bookkeeping and how important it is for small businesses. In this article, we’re breaking down the essentials of bookkeeping in a way that everyone can understand. But first, what is bookkeeping?
What is Bookkeeping
At its core, bookkeeping is the art of recording, organizing, and managing your financial transactions. It’s like keeping a journal of your business’s money moves. You’ll record income, expenses, and other financial activities to have a clear picture of your financial health.
Bookkeeping is important for a couple of reasons, including:
- Financial clarity: If done well, bookkeeping provides you with a clear picture of your business’ financial health. It helps you understand where your money is coming from (revenue) and where it’s going (expenses). This information is crucial for making informed decisions about your business’s future.
- Legal compliance: Proper bookkeeping ensures that you’re meeting your legal and tax obligations. It allows you to accurately calculate and report your income, pay the appropriate taxes, and stay in compliance with government regulations. Failing to do so can result in fines, penalties, or legal troubles
- Business planning: With effective bookkeeping, you can create budgets, set financial goals, make strategic decisions based on your financial data. You’re also better able to plan ahead because you can observe your business trends and see when your inventory is running low.
- Investor and Lender confidence: Having good business records is an important trait investors and lenders look for before giving money to businesses. They want to see that you have a clear understanding of your financial situation and can manage their funds responsibly
Tips for bookkeeping
Here are seven (7) tips we’ve found helpful for small businesses in their bookkeeping:
- Understand The Basics
To be able to properly keep your finances in order, you need to understand some of the basics of bookkeeping, e.g. debit, credit, balance sheets, income statements, etc. Regardless of how small your business is, these basics help make informed decisions from your financial statements. We’ve put together an article on some of the important terms to know with bookkeeping.Â
- Separate Personal and Business Finance
One common mistake many small business owners make is mixing personal and business finances. Trust us; it’s a recipe for headaches. Using the same bank account for personal and business affairs can lead to mix-ups in how you record finances. Open a separate bank account for your business, and use it exclusively for business transactions. It will make tracking your business’s finances much simpler.
- Make it a habit
Consistency is key for good record-keeping. But to get consistent, you have to make it a habit. Create a schedule to update your financial books, whether it’s daily or weekly. Whatever works for you, stick to it. This regularity will help prevent a mountain of paperwork from piling up.
- Use transaction categories
As you record your financial transactions, categorize them properly. Create categories like rent, utilities, office supplies, and so on. This organization will help you analyze where your money is going and make informed decisions about your budget.
- Choose the right tool
There are many ways to do bookkeeping. Some people prefer to do it on pen and paper. However, doing that poses many risks including the likelihood of losing the documents.
Businesses today prefer to record transactions online with applications like Oze. Oze is a business app for small businesses that allows them to record transactions and do other things like sending invoices, sending reminders to customers who owe debts, and selling online – all on their phones. Being able to record transactions on your phone means that you’re able to do it wherever you are, and you also have access to the transactions from anywhere, so you’ll never lose them
- Check your bank statements
It is important to reconcile your bank statement with your financial records because they don’t always match. Bank charges, stamp duty and other kinds of bank payments can easily skip your books if you do not reconcile them regularly. Your bank statement can also act as a guide for transactions you forgot to record.
- Review your books routinely
The final, and most important thing, is to take time out to review your books. This will help you stay on top of your business’s financial health and also make plans where applicable. You can also conduct routine analysis of your books to get some insight. Keep in mind that recording your transactions is only useful if you go back to it to make informed decisions.
If you use the Oze app, the analytics feature can help you make sense of your business progress.
Conclusion
Remember, bookkeeping is your business’s financial compass. It helps you steer in the right direction, avoid pitfalls, and make smart financial choices. By following these tips and staying committed to keeping your records in order, you’ll have a solid foundation for success.