Small Business Bookkeeping Basics

Bookkeeping basics is at the centre of all your small business accounting reports. Without the basic bookkeeping you will not be able to keep control of your business finances and produce useful management reports. There are two different types of accounts you can use, these are single entry bookkeeping and double entry bookkeeping.

Bookkeeping Basics - why is it so important?
It is easy to forget to complete bookkeeping basics whilst you are so concerned about getting the sales and delivering the goods or services on time. But it is important. If you do not keep your basics of small business bookkeeping up to date you may miss invoicing a customer, forget to chase up payment from a customer or end up paying bank charges if you go overdrawn. And remember, whether you are self employed or a company, it is a legal requirement to keep accounting records and store them for a minimum of five years.

Step One: Gain the Knowledge
The financial matters you will confront in your own business are little different than those of large corporations. Financial tools, coupled with an understanding of how to use them, will assist you in the proper management of your business. Without this understanding and without a dedicated commitment to using financial tools, you reduce your chances of success. Your business will be judged by the classic financial measures: the balance sheet, the profit and loss statement, and the cash flow statement. These three measurements will define the financial health of your company. In this session you will learn how:
The balance sheet tells how much the business is worth.
The profit and loss statement tells if your business is profitable or not.
The cash flow statement predicts your cash balances into the future.
As a business owner, you need to feel comfortable with the values portrayed by each measurement.
You will also need to gain knowledge of accounting in order to evaluate your competitors or businesses you might wish to acquire. The best source to learn about your most successful and publicly owned competitors is to read their annual reports, this can be obtained from MFSA at a nominal charge. You will need to understand accounting to draw intelligent conclusions.

Step Two: Select an Accountant
At present, there are no national certification standards for bookkeepers like there are for CPAs. So, it may be best to look for referrals when selecting a bookkeeper. Many CPAs will refer you to people they have confidence in to help you with your accounting needs. Bookkeepers range from those who only pay bills or process receipts to "full charge" bookkeepers who can summarise bookkeeping activity for your CPA to prepare tax returns.
You will need to determine what accounting software program will work best for your business and your accountant can help decide this. Some good ways to determine this:
• Ask others in your industry whose judgments you trust about their experience with software.
• Look for ads in trade magazines for software and visit booths at industry trade shows for ideas.
• In Malta the most used accounting software is Sage Line 50.

Ways that your accountant can help in dealing with your bank:

Sooner or later, you will need financing in addition to your start-up sources. It is important to establish banking relations before future needs arise. Your accountant can help you:
• Prepare cash flow control statements that will estimate what the cash needs of the business will be in months to come.
• Prepare a personal financial statement, including a balance sheet of your personal assets and liabilities along with a statement of income and expenses showing how much cash flow you generate each month. Banks will usually require a personal guarantee.
• Locate a bank. This can be helpful because the bank has had prior dealings with the accountant.
• Polish your business plan for your bank.
• Organise as much information as possible including financial statements in a neat and orderly fashion.