Bookkeeping for Small Business with Justine Lackey.
Bookkeeping for Small Business with Justine Lackey. Justine shares her entrepreneur journey and tips and techniques for small business bookkeeping.
At the time of this interview Justine Lackey was the founder and Chief Wealth Officer of Good Cents Bookkeeping (which she sold in February of 2023), and she has had the privilege to work with many talented people across a wide spectrum of industries.
Justine is a bookkeeping expert who specializes in helping creative professionals, service-based industries, and Internet Marketers all across the US stay in control of their finances.
With over 20+ years of experience in the field, Justine has been featured on Forbes.com, Entrepeneur.com, in Woman’s Day Magazine, and several podcasts and published books.
Justine lives in the New York City area.
Bookkeeping for Small Business with Justine Lackey
- Justine introduces what Bookkeeping typically entails for a small business owner.
- She shares some standard practices and techniques to help small business owners manage their financial transactions.
- How will a good bookkeeping system help small business owners make better business decisions?
- What tools and accounting systems do you recommend?
- Tips or techniques to help avoid frauds and scams?
- What’s the difference between my Bookkeeper and my CPA?
- When should I hire a Bookkeeper?
- What should I expect to pay for Bookkeeping services?
- What should I look for when hiring a Bookkeeper?
- What are your thoughts on digital versus paper copies of receipts, invoices, bills, etc.?
- How has online banking and the ability to integrate and download banking and credit card transactions, impacted bookkeeping for small business owners?
Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run and grow your small business.
What are the primary Bookkeeping considerations for a small business?
Bookkeeping is a crucial aspect of managing a small business, ensuring accurate financial records and compliance with legal requirements. Here are the primary considerations related to bookkeeping for a small business:
- Choose a Bookkeeping Method and System:
- Cash or Accrual: Cash accounting involves recording transactions only when cash is exchanged, making it simpler and ideal for small businesses. Accrual accounting, on the other hand, records revenues and expenses when they are earned or incurred, regardless of cash flow, providing a more comprehensive view of a company’s financial health but is more complex. Consult with your Accountant or CPA to help you choose the methos that best applies to your business.
- Manual vs. Software: Consider whether to maintain books manually (using a spreadsheet, which may be appropriate when first starting a small business with few and simple financial transactions) or use bookkeeping software. Software can automate many processes and reduce errors. We recommend solutions like QuickBooks or FreshBooks.
- Set Up a Chart of Accounts:
- Create a Chart of Accounts, which is a list of all accounts needed to cover the financial transactions of the business. This typically includes assets, liabilities, equity, revenue, and expenses. You Bookkeeper, Accountant or CPA can help you create your Chart of Accounts, and the financial management software you select should include a template or standard set of accounts.
- Record Financial Transactions:
- Record Transactions: Record all business transactions, including sales, expenses, purchases, and payments. This can be done daily, weekly, or monthly, but consistency is key to maintaining accurate records. This step also typically involved downloading financial transactions from your bank and business credit card accounts.
- Invoices and Receipts: Keep track of all invoices and receipts. This is crucial for monitoring the business’s financial health and for tax purposes.
- Reconcile Bank Statements: Regularly reconcile your business bank account statements with your bookkeeping records. This process involves verifying that your records match the transactions in the bank statement and is essential for catching and correcting any discrepancies. This is one step in the process which business owners should keep a close eye on, as it’s one method of auditing your financial transactions to detect possible fraud or embezzlement.
- Manage Accounts Receivable and Payable:
- Accounts Receivable: Keep track of money that customers owe the business. Prompt invoicing and follow-up are important for maintaining cash flow. Bookkeeping is also responsible for producing receivables aging reports to help the business owner (other assigned team leader) follow-up on past-due invoices.
- Accounts Payable: Similarly, keep track of what the business owes to suppliers and vendors. Ensure timely payments to avoid late fees, take advantage of payment terms to improve cash flow, and maintain good relationships with suppliers.
- Prepare Financial Statements:
- Profit & Loss (Income Statement): Regularly (at least monthly) prepare an income statement that shows the business’s revenues, costs, and expenses during a specific period.
- Balance Sheet: Prepare a balance sheet that provides a snapshot of the business’s financial condition at a specific point in time, showing assets, liabilities, and equity. You should review your Balance Sheet with your Accountant or CPA at least annually.
- Cash Flow Statement: A cash flow statement is also crucial, as it tracks the flow of cash in and out of the business. This is particularly important if you small business maintains inventory, has receivables, or is experiencing a cash shortage.
- Process Payroll: If your business has employees, it’s critical to handle payroll accounting accurately. This includes calculating salaries, withholding taxes, and ensuring timely payment of wages. We recommend that you use a financial software tool like QuickBooks or Gusto to help you process your payroll correctly.
- Prepare for Taxes: Keep your financial records in order for tax time. This includes calculating income, expenses, and deductions accurately. Good bookkeeping simplifies the process of filing tax returns. We recommend meeting with your Accountant and CPA throughout the year to address any potential issues, determine any required quarterly tax payments, and implement year planning strategies for your small business.
- Review and Analyze Financial Data: Regularly review your financial statements, including your P&L and Balance Sheet to understand the financial health of your small business. This can help in making informed business decisions, and addressing any potential issues as early as possible.
- Seek Professional Help: Consider consulting with a professional bookkeeper or accountant, especially if your bookkeeping becomes complex or if you need advice on financial planning and tax matters.
Effective bookkeeping is about maintaining accurate, up-to-date financial records. It not only helps in managing the day-to-day finances of your small business but also provides the information needed for strategic planning and growth.
Resources:
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