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Small Business Bookkeeping 101

Jason Torres, Senior Credit Analyst, First Republic Bank
December 7, 2021

Each day, small businesses incur a variety of expenses. Staying on top of these expenses is a core part of managing finances to strategically maintain and ultimately grow your business. This is where small business bookkeeping comes in.

As a business owner, you need a dedicated system to track and categorize your expenses. Small business bookkeeping may seem complicated at first glance, but there are a variety of tools and services available to help companies set up and keep a strong system going. This comprehensive Small Business Bookkeeping 101 guide is a great starting point, too.

What is bookkeeping?

Bookkeeping is the process of recording a business’s daily transactions. It helps business owners create and maintain a record of financial transactions. Each small business may set up its own bookkeeping system differently. This can depend on the type of company they operate and the industry in which they operate. Of course, this means that small businesses' bookkeeping systems can also vary in terms of their breadth and complexity.

Bookkeeping is a smaller part of small business accounting as a whole and is an important piece of the financial puzzle that helps businesses make key financing and operating decisions.

Key bookkeeping terms

Before you dig in and learn more, there are some basic bookkeeping terms you should be familiar with.

  • Accounts payable: Money you currently owe vendors or suppliers
  • Accounts receivable: Money you haven’t received yet from your customers for either your product or service
  • Balance sheet: Financial report listing your business’s assets, liabilities and equity
  • Cash flow: Money going in and out of your business
  • Single-entry bookkeeping: Method of recording one journal entry for each transaction, both income or expenses
  • Double-entry bookkeeping: Method of recording each transaction twice, once in your debits account and again in your credits account
  • Liabilities: Items you owe such as unpaid invoices, credit card balances and business loans
  • Income statement (P&L): Financial report listing what you’ve earned and what you’ve spent

This is not an exhaustive list of all bookkeeping terminology, but having a solid knowledge of these terms will provide you with a strong foundation in understanding small business bookkeeping.

Bookkeeping vs. accounting

Small business bookkeeping and accounting are similar, but they have distinct key differences. Foremost, bookkeeping is the process of recording financial transactions, whereas accounting uses bookkeeping as a first step to interpret, classify, analyze, report and summarize financial information.

Bookkeeping

Accounting

  • Recording, measuring and classifying financial data
  • Performed by a bookkeeper, who records and classifies transactions

  • High-level training required

  • Objective process

  • Overseen by accountant

  • Does not prepare financial statements and reports

  • Not involved in preparing taxes

  • Analyzing and summarizing financial data

  • Performed by an accountant, who analyzes and interprets financial data to advise businesses 

  • Specialized training required

  • Subjective process

  • Oversees bookkeeper

  • Prepares financial statements and reports

  • Involved in tax preparation

Small business bookkeeping tips

Although any financial task can be daunting, bookkeeping can be accessible for all small business owners. Bookkeeping does not require a specific skill set or formal training. There are several tips and tricks that can make bookkeeping easier. 

  • Use a filing system to keep track of financial statements
  • Track all expenses and income
  • Keep records of all expenses, like receipts
  • Track outstanding invoices
  • Keep personal and business finances separate
  • Use a business checking account and other business banking tools
  • Use small business bookkeeping software and/or accounting software
  • Use automation and tracking software when possible
  • Complete regular financial reviews, including quarterly and monthly
  • Stay on top of tax deadlines
  • Use professional resources

Online bookkeeping tools

Bookkeeping can be complex, but there are several online tools that take out the guesswork. Some are simple ledger templates, while others are more interactive and assistive to provide deeper, more personalized guidance. Tools can range in complexity based on your business’s needs and finances.

First Republic Bank understands that propelling your business forward requires a great toolkit. Your banker can provide offers for online bookkeeping and other tools that support your business. 

Why bookkeeping is crucial for small businesses

Although the topic can seem dense at times, bookkeeping is crucial to small businesses. Luckily, business owners don’t have to get their bookkeeping set up on their own: there are a variety of options for smaller businesses to help maintain a company’s daily finances, such as using online tools or hiring a dedicated bookkeeper.

Even if you haven’t started bookkeeping yet, you can start now to get a clear picture of your company’s finances.

 

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