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How to Be Your Own Bookkeeper

If you’ve recently launched your business and you’re looking to minimize overhead while you bring in your first sales, this article will walk you through how to do your bookkeeping yourself until you’re ready to hire an accountant.

Bookkeeping is the foundation of good accounting. It’s not that complicated, but it does require attention to detail across multiple repetitive tasks. Small errors can turn into much larger issues later on.

We’re going to assume that you’ve already set up your business bank accounts and linked them to an accounting software like Wave or Quickbooks. (If you haven’t, check out our Accounting Quick Start article.) We’re also going to assume that you’re following the best practice of updating your books every month.

1. Record all New Transactions

The first thing we need to do is make sure we have a complete record of all the transactions that took place during the month. Otherwise the records will be incomplete. Round up your bank statements and find the “Reconciliation” tool in your accounting system. Enter the ending account balance from your statement into your software. It should match exactly to the account balance in the books. If it does, quickly compare the list of transactions in your books to your bank statement to make sure everything matches, and you’re done.

If it doesn’t, it’s time to go error hunting. Start with the first day of the month and then walk forward day by day comparing the balances until you find when the discrepancy started, which will also narrow down what caused it. If any transactions happened outside of your business accounts, you’ll need to enter those manually. For example, maybe a client paid you in cash. Or maybe you put a business expense on your personal credit card (bad juju!).

Something you’ll notice as you go through this process is that any time you use a method other than your business accounts to make or receive a payment, it creates extra work and the potential for error. The more you streamline how you receive and make payments, the better.

2. Attach Receipts

Everyone’s favorite part! No, not really, but the IRS requires receipts for any transaction equal to or greater than $75, and staying on good terms with the IRS is important. In your accounting software, go down the list of transactions and upload the matching receipt to each one. We are proponents of the more receipts the better, even for smaller transactions.

3. Categorize Transactions

Now that we know you’ve found all the transactions, each one needs to be sorted into a category so that we can identify overall trends and patterns. The list of categories to choose from is called your Chart of Accounts. Your accounting software will come with a template to get you started. Before long you’ll want to customize this, but that’s a topic for another time.

In the Transactions page of your accounting software, go down the list and assign a category to each transaction. Most softwares will start automatically learning and in the future will categorize any transactions they recognize for you.

4. Check Your Reports

Go to the Reports tab in your accounting software. Start with the Trial Balance. This is a list of the current totals for every account in your Chart of Accounts. Scan down the list and make sure nothing looks weird. If something does, pull up the transactions for that account and figure out why.

If everything looks right, then close the Trial Balance and bring up your Profit & Loss (P&L) Statement. Some good questions to ask while studying this are: How much did I net? What was my profit margin? What were my biggest sources of revenue? What were my biggest expense categories?

Next, go to your Balance Sheet. This gives you a bigger picture view of your business. You might ask, how much money have I invested in starting my business? How much of that have I been paid back so far? Based on my current revenues, how long will it take to pay off any debt my business has?

At least once a quarter, also take a look at your Cash Flow Statement.

When to Hire Someone

We recommend having a CPA finalize and close your books before filing taxes.

The time to hire a CPA to close your books on a monthly basis is when your books start becoming too complicated to keep up with on your own. Examples of this include if you take out a business loan, bring in a business partner, or buy assets that need to be depreciated such as a car.

Bring on a Bookkeeper when you need to free up your time. You definitely don’t want to miss out on closing a new client because you were stuck reconciling accounts.

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