With the global accounting software market expected to reach $36.27 billion in 2025, businesses increasingly invest in technology to keep their financial activities in check.
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Businesses can use accounting software and other tools to manage the bookkeeping process. However, the best way to streamline the activities is to follow the bookkeeping best practices and establish generally accepted accounting principles.
In this post, we’ll explore practical and proven bookkeeping strategies that can help your business stay organized, reduce mistakes, and ensure compliance.
Let’s get started.
Bookkeeping is the systematic process of recording financial transactions in a company. A bookkeeper will periodically identify, record, summarize, and report the financial activities of a business.
Bookkeeping consists of various tasks such as:
When it comes to managing finances, bookkeeping for small businesses is much more straightforward compared to accounting. Bookkeeping focuses on tracking and recording financial transitions, whereas accounting is more complex.
Bookkeeping isn’t just about data entry. It involves analyzing financial data, establishing internal controls, and providing insights for better decision-making.
Following bookkeeping best practices helps maintain transparent and error-free financial records. With these detailed records, you can measure your performance periodically.
Whether you hire a good bookkeeper or opt for smart cloud accounting software to automate the process and save time, the right solution depends on your unique business needs and goals.
Before we explore the bookkeeping best practices, let’s understand why bookkeeping is essential for businesses of all sizes.
Bookkeepers play a key role in organizing your financial transactions, creating a central hub for all your important data—whether it’s business expenses, cash flow, or revenue sources.
Adhering to bookkeeping best practices enables easy access to financial data. It makes it easy for stakeholders to quickly retrieve crucial data for in-depth analysis and comparison.
A good bookkeeping system can also organize these transactions in categories, such as accounts receivable and accounts payable, to save time.
As mentioned above, thanks to bookkeeping practices, organized financial data is always at your disposal. You can make more informed business decisions by reviewing and analyzing your financial resources and expenses.
Bookkeeping best practices help you draw revenue patterns, cash flow fluctuations, and expense trends for a comprehensive overview. These insights allow you to design a more realistic budget for the next season.
Bookkeeping best practices can help you manage the overall tax burden more efficiently. Remember that tax rates will vary depending on your state and locality.
New Jersey had the highest corporate income tax in 2023 with an 11.5% tax rate, while North Carolina had the lowest tax burden with a 2.5% tax rate, as illustrated below.
Image via Statista
Image via Statista
Meticulous financial statements will help you plan tax filing well in advance. Additionally, you can analyze the revenue and expense patterns to identify potential tax-saving opportunities and take advantage of available tax benefits.
Is your company profitable? The answer to this lies in your bookkeeping records. Bookkeeping for beginners is one of the most trusted ways to measure a company’s performance and financial health.
Following bookkeeping best practices ensures you’re tracking the right metrics like profit margins, cash flow, and expenses. It provides valuable insights into your financial status, helping you make data-driven decisions for growth.
Bookkeeping is the foundation for financial accounting. Adhering to bookkeeping best practices ensures accurate and detailed financial records essential for preparing reports to share with investors, stakeholders, and business partners.
Transparent and accurate financial statements always establish credibility in the long run. One of the benefits of an accounting platform is that you can automate reporting to save time and eliminate errors.
Effective bookkeeping provides clarity on revenue streams and expenditures, enabling informed financial decision-making. Without bookkeeping best practices, cash flow mismanagement could lead to financial struggles or missed opportunities for growth.
By following bookkeeping best practices, you can streamline cash flow management in the following ways:
Accurate records ensure you meet tax obligations and comply with local, state, and federal reporting requirements. This is crucial because tax mistakes and non-compliance can lead to audits, fines, or legal consequences.
Upholding bookkeeping best practices helps you avoid penalties and enhances your business’s reputation with authorities and stakeholders.
You want to maintain accurate and updated financial records as a small business owner. But bookkeeping is more than just recording transactions and organizing records. Here are some expert-recommended bookkeeping best practices you need to follow to optimize the bookkeeping process.
Let’s discuss how to incorporate the bookkeeping process into your operations to create clean and thorough records.
One of the fundamentals of small business bookkeeping is to keep your personal and business finances separate. It’s one of the most crucial bookkeeping best practices that helps you maintain financial control.
Right from the time you begin your business, establish a clear delineation by having two separate bank accounts and credit records for personal and business finances.
According to the LLC formation principles, this step will help streamline the bookkeeping process. Such bookkeeping best practices will protect your business assets in case of auditing or legal disputes, and vice versa.
One of the important bookkeeping best practices for small businesses is to decide on the accounting method they want to follow. Based on your choice, you can set guidelines for the team, distribute roles, and invest in the right accounting platform.
Here are the 2 options to consider when it comes to upholding bookkeeping best practices:
When you use good accounting software for small businesses, the system will keep track of your expenses and revenue. However, as one of the basic bookkeeping best practices, you should organize all your original invoices and receipts.
Maintaining hard copies is one of the major bookkeeping practices you shouldn’t overlook, as it ensures you have a backup for all the digital records. The hard copies are useful when auditing your accruals and accounts receivable.
In case of any discrepancy, you can cross-check and verify the details. This bookkeeping practice is especially relevant for small businesses that need to track their expenses and revenue minutely.
One of the fundamental bookkeeping best practices is to comply with the Generally Accepted Accounting Principles (GAAP). These are a set of standardized bookkeeping and accounting principles that every accountant must follow.
All businesses need to abide by these ethical and regulatory guidelines and bookkeeping best practices while preparing their financial statements. As a bookkeeper, you need to understand GAAP compliance principles well to avoid causing any legal complications for your clients.
One of the crucial bookkeeping best practices for business owners is establishing clear internal controls to regulate financial activities. If your employees are in charge of business finances, it is necessary to establish bookkeeping best practices, such as dual authorization while distributing and receiving funds.
You can divide your financial responsibilities between two or three employees, where one authorizes the translation and others will manage asset custody and record-keeping. Such accounting practices can help you avoid fraud and mishandling of finances.
If your business receives payment in cash, this is one of the most important bookkeeping best practices for you. Small business owners are often tempted to divert cash payments to manage day-to-day expenses without depositing the cash in the bank. This leads to an immense discrepancy in bookkeeping records.
Effective cash flow management is an essential bookkeeping best practice that helps you tally revenue and expenditure. Ensure all cash flow is recorded and deposited into your bank account before spending it.
Bookkeeping is a technical task, and it is best handled by a professional bookkeeper. If your small business can’t afford to have an in-house bookkeeper, one of the bookkeeping best practices is to outsource the responsibilities to a freelancer.
Why is hiring a professional better than maintaining accounting processes yourself? Well, as a business owner, your time is very valuable. You would rather spend it meeting clients, developing products, and growing your business.
Also, as your business grows, bookkeeping gets complex. The most logical solution is to leverage the services of an expert to oversee your accounting system and generate accurate financial reports. Furthermore, an expert is well-versed in bookkeeping best practices to effectively manage your finances.
One of the unsaid bookkeeping best practices is to review your financial records regularly. Your small business bookkeeping software should automatically generate a monthly report of all the transitions. Reviewing this organized data will help you track your activities periodically.
As a bookkeeper, monthly reviews are necessary bookkeeping best practices that equip you to create additional categories, tally the accounts payables and receivables, and prepare a comprehensive balance sheet. As a business owner, this essential activity helps you observe financial trends and generate more revenue for your business.
One of the most practical bookkeeping best practices is automating the entire accounting process. Today, we have simple accounting software for startups and more advanced solutions for complex enterprise-level accounting.
Some of the benefits of automating the bookkeeping process are:
Using a tool for small business bookkeeping is one of the most overlooked bookkeeping best practices with plenty of benefits. However, you’ll need to choose the tool wisely. Instead of opting for an expensive tool that promises a bundle of features, opt for effective software that helps you streamline the process within your budget.
Account reconciliation is one of the most essential bookkeeping practices that helps you verify financial transactions. Compare your internal financial records with external banking transactions, credit card statements, or loan statements. This helps you verify if every transaction is accurately recorded and that no discrepancies exist.
Some of the key bookkeeping best practices to follow when reconciling accounts include:
Rregularly reconciling accounts allows you to spot unauthorized transactions or fraudulent activities early. This is one of the non-negotiable bookkeeping best practices for businesses dealing with multiple payment methods or high transaction volumes.
If managing bookkeeping for your sole proprietorship business feels overwhelming, you can use accounting software for self-employed professionals to automate and simplify the reconciliation process.
Governments and regulatory bodies often update tax codes, labor laws, and financial reporting standards. Staying informed is one of the crucial bookkeeping practices that helps you to remain compliant with the latest requirements and optimize your tax strategies.
Additionally, investors, lenders, and partners are more likely to trust your business if you demonstrate a strong commitment to compliance and regulatory awareness. Here’s how to stay updated on financial regulations and enforce current bookkeeping best practices:
1. What are the 3 basic bookkeeping practices principles?
The 3 basic bookkeeping best practices, or golden rules, are:
2. What are the important elements of bookkeeping?
Some of the important elements of bookkeeping best practices are:
3. What are the steps for performing bookkeeping?
These are the important steps to execute bookkeeping best practices successfully:
4. What is the difference between single-entry and double-entry bookkeeping?
Single-entry and double-entry bookkeeping are two methods of bookkeeping with different purposes. Single-entry bookkeeping records a financial transaction as one entry. The only records maintained are cash inflow and cash outflow. This method is best suited for businesses that calculate their income and expenses daily and generate a daily or weekly cash flow statement.
Double-entry bookkeeping, on the other hand, is a more complex method. There will be two entries in the journal to denote a simple transaction. Such best bookkeeping practices allow you to compare and balance entries in the credit and debit columns. Many business owners prefer a financial accounting approach to generate a comprehensive income statement.
5. What are some common bookkeeping challenges for small business owners?
Small businesses face some major bookkeeping challenges, like:
Growing small businesses need to adopt the top bookkeeping best practices to keep track of their financial activities. While many small business owners stress marketing and sales, bookkeeping is equally important for business operations.
The accounting practices discussed above can help you maintain accuracy and transparency in your financial statements. They can also help you improve your productivity, forecast your budget better, and establish your business on a firm financial foundation.
Incorporate these bookkeeping best practices into your accounting process to make it more effective and effortless.
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