It is my experience that the vast majority of people who start their own small business do it for one major reason – they are good at what they do. Small business owners most frequently take their experience, practical knowledge or passion, and apply that to the success of their small business.
It is also my experience that almost all of the people who start their own businesses either hate administration or are not admin minded, so very often the admin side of a small business heaps up, runs behind, or just does not get done (or at least does not get done correctly).
The same goes for bookkeeping. Most small business owners either have no clue about bookkeeping, or perhaps just don’t care, as long as they are making money and their business is surviving.
Bookkeeping does require some time in your small business to be done correctly, and not everyone has the right mindset or patience to sit in front of a computer paying attention to numbers and paperwork.
The thought of sorting through heaps of receipts, invoices, bank statements and financial transactions just doesn’t appeal to a lot of folk.
Also, those who find bookkeeping boring will not be motivated to do it, which in turn makes it seem hard to do for most.
Why Does Bookkeeping Seem Hard to do?
- Some aspects of Bookkeeping can seem very hard, especially things like:
- What type of expenses are tax-deductible?
- What type of transactions go onto the Balance Sheet?
- What type of transactions go onto the Income Statement?
- Trying to figure out how to do Double Entry Bookkeeping
- What is a Bank Reconciliation?
And the list goes on and on …
Is Bookkeeping Difficult if I have Bookkeeping Software?
The great thing about using bookkeeping software is that a lot of the bookkeeping processes are automated, so you can get by without knowing the whole double entry process or journals or ledgers, or things like that. Major bookkeeping software platforms make the whole bookkeeping process far more simple and easy to process. How? Well, with the whole process being automated, the entire double entry method process is automated. Bank statements are automatically uploaded from the bank into the software, usually daily, so all you have to do is allocate each transaction to an account category and click ‘OK’.
There is no preparing and writing journal entries like we did back in the day of manual bookkeeping. However, even in this day of advanced and great software, there are still a few things that make bookkeeping difficult, such as:
- Making sure the bookkeeping software is set up correctly to begin with
- Not knowing how to enter and process a refund to a client
- Not knowing how to enter and manage a loan and its repayment
- Not knowing how to enter a business expense that you used your personal cash to pay for
If you are a small business owner, or are thinking of starting your own small business, and are thinking of doing your own bookkeeping (which is common for many small startups), then you must be prepared to invest time and effort in learning at least the basics of bookkeeping, including:
- How to issue invoices to clients
- How to monitor and manage who owes you money (accounts receivable)
- How to monitor and manage who you owe money to (accounts payable)
- Reconciling your accounts regularly so that your bookkeeping is accurate
- Running income statements, balance sheet and cash flow statements (and also how to understand these statements)
- How to save money on your tax bill when your annual filing to the taxman comes around
All this can be very intimidating if you are already short on time and spending most of your time just running your business, looking for new clients, etc.
Another reason that bookkeeping may be difficult is all the red tape, rules and regulations that your tax and government authority may require when it comes to running your small business, such as:
- How long do I have to keep any bookkeeping paperwork?
- Have I categorised all my business income and expenses in the correct account categories and at the correct date?
- Have I calculated by business tax correctly?
- Have I filed my annual returns? When do I have to file my annual returns?
- What about the correct employee taxes and payments to the tax authority?
All of this means that you must:
- Not recording personal expenses as business expenses in your books
- Have a robust filing system (either physical or digital) that is easily accessible
- Know what transactions go into the Income Statement and which go into the Balance Sheet (This has implications for your tax filing)
- Recording every item of income, even your cash income, because this affects your tax payable. Under-reporting your income could mean penalties from the tax authority if they decide to request supporting documentation or even do an audit of your business
- Treat Assets and Depreciation appropriately
Just to highlight a few things you must consider.
You can always outsource you bookkeeping to a professional if you now realise that bookkeeping may be hard for you. Just remember to make some extra room in your budget for this.
What Skills Do I Need to Make Bookkeeping Easier?
Bookkeeping is all about capturing, organising and analysing. These are just some of the skills you need, or need to learn:
- Be methodical and consistent
- Be patient to find what’s wrong if numbers don’t balance
- Do basic maths
- Know how to organise numbers in software or in a spreadsheet
- Be diligent at keeping your filing system up to date and accurate
- Be willing to always keep up to date with new technologies and processes regarding tax laws, company laws, etc.
- Be willing to attend courses and to regularly update your bookkeeping and administration skills.
If all this just seems too much for you do deal with, check out our Services page to see how we can help you, or contact us today. We will be happy to meet with you to discuss and help plan your future success.