When you start a business, everyone tells you to set up your bookkeeping and to get it right from the start. But they never really tell you what bookkeeping is & how to actually do it. And with every business being unique, bookkeeping doesn’t look the same for everyone.
But the good news is, the basics stay the same across the board. And they don’t need to be complicated.
Bookkeeping is the art of keeping your business finances in check. It’s recording and organising all the ins and outs of your money – income, expenses, and everything in between. It’s capturing the financial story of your business.
Without bookkeeping, you’re flying blind. But with bad bookkeeping, you’re probably flying backwards.
It’s super important to invest in your own knowledge and training to understand exactly what you need to do for your business. But if you’re flat out for time (like most business owners are), you could outsource your bookkeeping to a professional.
Depending on the scale of your business, outsourcing all your bookkeeping can be too costly, especially in the early years. In this case you could look at doing a mixture of both. There are plenty of different options and variations to suit whatever season your business is currently in.
That covers the why part of bookkeeping. Because knowing why you’re doing something is just as important as how you do it.
But it’s time to jump into the how. If you are just starting out, I’d recommend starting with the below steps to help you build a solid foundation for your bookkeeping:
Set up your business bank accounts
If you’re still using your personal account, it’s time to jump online and sign up to a business bank account ASAP. At a bare minimum you should have an everyday account to pay bills from and receive payments from your customers, as well as at least one savings account.
If you accidently use your business account for a personal expense, don’t stress it happens to the best of us. Just be sure to code it to your drawings account (or loan account if you’re not a Sole Trader or Partnership). If you use your personal account to pay for a business expense, make sure this is brought into your accounting software. You don’t want to miss out on all those good deductions!
Sign up to an accounting software
If you’re running a business, Excel just isn’t going to cut it. I’m all for a good spreadsheet and they definitely have their place, but using an accounting software is a non-negotiable if you’re serious about business.
Now, at Bare we’re super biased when it comes to picking an accounting software. We are a 100% Xero only firm and live and breathe this software. Now, that’s not to say it doesn’t have its faults, because they all do. But Xero is consistently ahead of the pack, and we don’t foresee that changing anytime soon.
Choose the right settings for your business
Now, this is where things can start to get a bit tricky. Xero is great at prompting you along in the initial setup phase so you know which important details you need to provide. However, if you’re unsure of anything this is the time to reach out to a professional. Getting it right from the beginning will save you time and stress down the track.
Handy tip – make sure you have your ABN and TFN handy, as well as knowing what your business structure is and if you are registered for GST or not.
Connect your bank feeds
For each of your bank accounts, you want to set them up in Xero and connect the bank feeds. Different banks have different processes for this – some you connect through the bank’s online settings, others you will need to sign and upload a form that takes up to 10 days to process. Simply select your bank and follow the prompts.
Chart of accounts
Xero provides a great basic chart of accounts to get you started. You can get fancy later on and add in custom ones to really refine your bookkeeping.
Start reconciling
Once you have all the essentials set up, it’s time to get stuck in to the actual ‘bookkeeping’ part. Reconciling makes up a large chunk of this. You’re taking all those financial transactions such as your sales, expenses, transfers, payroll and more and telling Xero where to keep them.
Think of it as the ‘who, what, when, why’.
Who: supplier, customer, transfer, payroll etc.
What: what account best describes this transaction? Did you buy pens from Officeworks – maybe code to ‘Printing & Stationery’. How about your Xero subscription fee each month? Code to ‘Subscriptions & Memberships’.
When: Xero will record the date for you if reconciling from the bank feed, but if you’re creating an invoice or bill – make sure you pop the correct date in.
Why: this is your description. Pop in a few words here to summarise what the transaction was for. Keep it clear & concise.
Got through the above steps? Congrats, you are on your way to becoming a bookkeeping pro.
But if not don’t stress, it’s easy to feel overwhelmed when first tackling your business bookkeeping. Ther are many other business owners who feel exactly the same.
But the sooner you take those first few steps, you’ll realise it’s not so scary and you’ll build enough momentum to take control of your bookkeeping and know exactly where your business is at.