Every business, no matter the size or the industry they’re in, will need to priorities bookkeeping and accounting… and you might well think that the two are synonymous and, indeed, they do appear to be very similar until you sit down to actually do some work. You’ll very quickly realise that the two are in fact inherently different, even though they do both deal with financial information.
Basic knowledge of accounting is required for both but the processes are very different – so from a business perspective, you do need to know the intricacies of both, especially if you plan to do the work yourself and without the help of small business accountants.
Bookkeeping involves the measuring and recording of a business’s financial transactions, whereas accounting is the process of summarizing and interpreting these financial transactions, as set out in the ledger account.
Running a successful business is all about making key decisions at the right times, which the information you get through bookkeeping can’t help with. But with accounting, depending on the data you receive from the accountants, you can then make critical business decisions.
Bookkeeping is simply a clean and systematic record of your transactions, but the purpose of accounting is to work out the financial situation of a company and communicate the relevant information to the relevant departments.
You can easily learn how bookkeeping practices and procedures, and it’s not too hard to pick up if you want to do this for yourself, but accounting will require experience and a certain set of skills in order to carry out the appropriate analysis of the information in front of you.
Of course, you will still need to be accurate in your work when bookkeeping and have some knowledge of financial topics, but don’t worry too much as a professional accountant will typically look over the work being done, so any issues can be found quickly and easily.
As with anything, however, technology is fast becoming very important in both these areas and this means that the lines between the two have blurred a little over the last few years.
Different software that’s available these days has meant that some parts of the accounting process have been absorbed into bookkeeping methods and by the same token, there is now software out there that can generate financial statements, which previously would only have taken place during the accounting process.
Top 4 Tips for Bookkeeping
You need to have a robust bookkeeping system in place if you want to run a successful company, regardless of the size. It’s essential that you ensure your books are up to date, accurate and easily available, since this will provide you with vital information on the financial standing of your organisation.
Here are some expert tips from us here at Fusion Accounting to help you on your way.
Also Read: 9 Key Bookkeeping Tips for Business Owners
If it’s your first time bookkeeping, you might feel overwhelmed with it all but just take your time and build your confidence up so you don’t make mistakes. By the same token, don’t be afraid to ask for help if you think you need it.
Build It Into Your Schedule
It’s very easy to fall behind on your bookkeeping so you would be wise to build it into your monthly schedule, keeping it on the same day and time each month. This will help to make the entire job far more efficient and as accurate as it can be.
Separate Your Personal Finances
It should go without saying but you’d be wise to ensure that your business and personal finances are kept separate from the get-go.
When starting a new small business, because you’re doing everything yourself and you’ll likely be responsible for all the operations at the beginning, it’s easy to get confused where your finances are concerned. Set up a separate company bank account as soon as you can, as this will save you an awful lot of time when filtering out personal purchases.
Rectify Mistakes As Soon As They’re Spotted
Whenever you spot an error in your books, no matter how big or small, make sure you take steps to rectify it immediately. If you leave it for a few months, it’ll get bigger and be harder to correct.
Top 10 Tips for Accounting
As with bookkeeping, doing your accounting properly from the outset is wise as this will make it easier as time goes on and as your business grows. To help you get to grips with this side of running a company, here are a few top tips to help you perfect the accounting process.
Track All Your Expenses
Every business expense should be labeled and categorised properly to help you track cash flow and make sure you’re able to maximise any tax write-offs you might have. Using a business credit card for everything you buy can prove useful in this regard, because you won’t have hundreds of receipts to go through. Use accounting software to help you track checks and invoices that have been paid as well.
Hire a Professional Accountant
This is always going to be a wise move and it can prove particularly beneficial at the very start, since you’re unlikely to know what needs to be done and how to do it if you’re setting up your first company. Accountants can also help you with strategic planning and file taxes on your behalf.
As previously mentioned, technology can really help with the accounting process and there’s a lot of software out there that can make it a lot easier, particularly for new business owners. Check to see if you can link your bank account and credit card to the software you’re looking at, since this would prove especially useful.
Look to the Future
There will always be big purchases each and every year that you need to plan for, whether it’s an upcoming tax deadline or upgrades to the computers in your office.
Look to the Future, Part 2
Look at your Financial Information – can you use it to make any projections for the future? You should be able to work out where your company will likely be in the next two or three years – and this will help you work out where to invest your revenue. Of course, it can be hard to make financial predictions so it might be better to sit down with a certified accountant to come up with realistic projections in this regard.
Create Profit and Loss Statements
Not heard of these before? These statements can give you an idea of the financial health of your company, summarising the expenses, costs and revenues associated with running your business.
Don’t Let Your Clients Avoid Regular Payments
While it’s certainly pleasing to see a lot of money in the receivables column on your spreadsheet, remember that this is all fictitious until it lands in your bank account, so whatever you do don’t let your clients avoid making regular payments.
Work Out Your Minimum Monthly Profit
You should take the time to come up with a robust system of expenses and regular payments, so you know exactly what your minimum monthly income needs to be. It shouldn’t be difficult to work out your income so decide upon a strict target and stick to that. You might well find that if you don’t do this, your accounting soon becomes confused – which could have a lasting impact on the success of your business.
Collect Donation Receipts
Whatever contribution you make and wherever you make it, make sure that you collect a receipt so that you know your donation will be more likely to be accepted as a tax write-off.
Don’t be Scared to Ask Questions
If you don’t know the answer to something, never be afraid to ask. If you’re using an accountant, remember that you’re paying them for their time and there’s no reason why you shouldn’t take advantage of their wealth of knowledge so you can gain a greater level of understanding of what goes into running a business.
Fusion Accountants are specialists in helping with financial compliance so you can prioritise the growth of your company. Fusion Accountants have different accounting software on offer to help you with everything from the sending of invoices to the creation and sharing of reports from wherever you are, on any device.
You can use this software to handle expenses, manage and pay your bills, see real-time information about your company’s finances, view key performance reports, send invoices and a whole lot more.
Check out Xero for more small business tips.