Skip to main content

At its most basic, bookkeeping is simply recording all of a business’s financial transactions. Sounds simple, right? Well, despite that seeming simplicity, most small business owners have little to no understanding of what bookkeeping is, how to do it or why it’s so important.

The fact is that if you ignore your bookkeeping, you will have an extremely limited view of your company’s finances. You won’t have a good idea of how much you’re earning, nor how much you’re spending. And without those insights, trying to grow your small business is going to be much more difficult.

With that in mind, here’s everything you need to know about bookkeeping for a small business and why it’s one of the most important basics of accounting.

Is bookkeeping just another word for accounting?

It’s typical for bookkeeping to be confused with accounting. That’s because bookkeeping is a part of the general accounting function. So while accounting will be looking more at finance analysis and developing financial strategies, bookkeeping is recording and then reporting on information regarding your finances.

What does bookkeeping involve?

Bookkeeping is all about the day-to-day finances of your small business. It will cover everything that happens in a workday, including:

  • Any payments that you make
  • Any sales that you make
  • Chasing any outstanding payments from your customers
  • Ensuring that you’re paying the right amount of tax (or claiming the right amount back)
  • Wage bills.

Bookkeeping for a small business means tracking all of the payments that go in and out of your business. It uses three different kinds of financial records:

  • Cashbook: This will be the details of your cash flow a record of every payment that goes in and out of your business’s bank account.
  • Sales invoice: This is the record of everything you have sold and includes payments made to you and any unpaid invoices.
  • Purchase invoice: This final record will cover everything you’ve spent money on and include details of how those payments were made.

These are the bare minimum when it comes to the basics of accounting and should form the basis of all bookkeeping for a small business. While small business bookkeeping can seem daunting, there are ways to make it easier for yourself. We’ll cover those options in more detail, but one thing to remember is that it’s always a good idea to have a meeting with a certified accountant before you launch your business (or as soon as possible if you’re already trading).

All businesses are different and will have to approach their bookkeeping in slightly different ways. But without it, your small business will struggle to succeed. The more you know about bookkeeping for a small business and some basics of accounting, the better you’ll manage your finances and start growing your business.

The basics of bookkeeping for a small business

The first thing you need to know about bookkeeping for a small business is that technology has changed the game entirely. It used to be that accounts were recorded using physical books and pens, which meant laborious data entry by hand, with human error being common. Now, accounting software has made it much easier to collate, read and then report on your accounting. 

There are plenty of software options available too. From Big Red Cloud’s renowned accounting software for small businesses to the range of QuickBooks alternatives that are springing up in light of recent changes, you have plenty of options to choose from.

However, it’s always worth knowing some of the terms used in bookkeeping for a small business. This can help you get everything set up on day one and ensure you have more control over your present and future finances. Here’s what you need to know.

Open a new business bank account

One of the things that better bookkeeping achieves is to make life easier and more organised. If you have to search through multiple bank statements to find a sale or an expense, you’re going to be wasting time that could be spent more productively. That’s why one of the first things you need to do is open a business bank account. 

By doing so, you can easily keep track of your private finances and your business finances. This will cut down on any confusion while making it much easier to find any financial information you need.

Budget for taxes

The last thing any small business wants is to get a surprise from the taxman. That’s why you need to approach your finances with one eye on your tax obligations. So budgeting for taxes should be something you do all year round, not just at the end of the financial year. Work out how much tax you’re likely to be liable for, and put that money aside every week or month. 

When your tax bill arrives, the fact that you’ve been preparing in advance will give you peace of mind and a safe business. 

Stay organised

Bookkeeping, even with time and money-saving accounting software, might be a necessary job, but it’s also easy to procrastinate over. Disorganised bookkeeping for a small business will only slow down your business growth because you’ll end up spending more time trying to sort through the numbers than you will on business scaling.

That’s why you need to keep your financial records up to date and easy to read at all times. You need to know where every piece of financial information is stored so that you can find it quickly and easily whenever you need it.

As tax season gets closer, you’ll be glad you took a little time every week to keep your books and accounting software updated, clean and organised.

Tracking your expenses

Tracking expenses can be tricky, but there are ways to make it easier. A business credit card, for example, will make it much easier to track and record all of your business expenses. 

Understanding the difference between purchases for resale and expenses will be vital, so do some research to avoid bookkeeping mistakes. It can be easy to overlook the importance of tracking your expenses, but it’s one of those business costs that soon adds up. 

Track non-payments

If you have customers that pay you late, then your cash flow will be harder to manage. So you need to make sure you always know who owes what and when they’re likely to pay. Overdue invoices are the bane of any small business, which is why resources like debtor’s statements are so useful.

If a customer gets into a debt that they can’t repay, you need to respond in the right way. Stop all credit options for that customer and arrange a repayment plan. This is something you need to stay on top of because an interrupted cash flow could be the beginning of the end of your business.

Use your nominal ledger

Those early days of bookkeeping for a small business that involved pen and paper used a book called a nominal ledger (also known as the general ledger). These days, accounting software for small businesses includes a virtual nominal ledger. So the nominal ledger, where you record all of your financial transactions for the day, is still a vital element of modern-day accounting for small businesses.

Get used to entering financial information in your nominal ledger every day. If you’re not using some form of accounting software to manage your accounts, then you’ll need to record those transactions by hand. For those using accounting software, recording data into your nominal ledger is much faster, easier to organise and may even be integrated into third-party software and apps to automate the process entirely.

Your entry system

This aspect can be confusing but don’t panic if it seems a little mystifying at first. Essentially, there are two types of accounting that a small business can do. These are known as single-entry and double-entry accounting. 

  • Single-entry accounting: This is the easiest and most basic type of accounting and is especially useful for small businesses that don’t have a massive inventory or huge startup costs. It simply involves making a record of every financial transaction and marking it as an expense or income. It couldn’t be easier.
  • Double-entry accounting: This is where it gets more complicated. Double-entry accounting means that every transaction is recorded into your accounts twice. Each transaction is recorded as both a credit and a debit. This process is a lot more complicated, but it has its value because it makes it much easier to spot mistakes or inaccuracies. 

Choosing the right entry system is essential and one of the first questions to ask a certified accountant about before you launch your business.

Your choice of accounting method

You then have another decision to make. You need to decide whether you’re going to use an invoice or cash basis of accounting. Don’t be mistaken by the names. A cash basis doesn’t mean that your business only accepts cash payments (your customers will still be able to pay using credit cards, cheques, bank transfers, etc.).

This is a little bit of a personal choice for you to make. While invoice basis accounting is a little easier to manage, each system has pros and cons. Ensure that you have some understanding of both before you commit to one.

Transaction management

You’ll probably have come across the idea that you have to manage your transactions. It’s one of the fundamental basics of accounting, and it’s just a technical way of saying that you have to record all of your financial transactions. We’ve covered that in other sections of this guide, but one aspect that we haven’t touched on yet is the difference between a cash and credit transaction. Make sure you understand what each means so that you can choose the option that’s best for your small business.

Your payroll

Your payroll is one of the most important payments your business makes, so it’s essential to get it right. Software is the easiest way to manage your payroll, and there are plenty of options to choose from. Most good accounting software will include payroll management features, but many dedicated payroll software products are available. 

How long do you keep financial records?

You must know how long to keep your financial records on file. Those small businesses that do self-assessment on their taxes will be required to keep a record of their accounts for at least five years. For limited companies, financial records have to be kept for six years at the least. 

Expenses and tax claims

Never forget that if you’re self-employed, then you’ll be able to subtract some of your expenses from your tax obligations. Far too many business owners overlook this and lose out on thousands of euros as a result. Talk to your accountant or bookkeeper to ensure you can claim back all of the tax you’re allowed on allowable expenses.

Opening and closing your books

When you’re working out what your finances look like at the end of any accounting period (that could be daily, weekly, monthly, quarterly or even annually), you want your opening and closing balances to match. 

It’s a good idea to get used to comparing your opening and closing balances regularly. If any mistakes have happened, spotting them early gives you more time to find where you went wrong. Again, the right accounting software will do this automatically, so it’s only those still using physical bookkeeping that need to worry more about balancing the books.

Bookkeeping for a small business

The more you understand the basics of accounting, the easier it will be to make smart choices about your bookkeeping. Whether you’re doing your small business bookkeeping yourself, have hired an in-house bookkeeper or you’ve outsourced entirely to a dedicated accountant, having that basic level of understanding will only ever work in your favour. 

Get your bookkeeping for a small business right, and you’ll find it much easier to take control of your finances. Those finances can give you the insights you need to grow your business or identify where cash is being spent unnecessarily. 

At Big Red Cloud, we’ve been supporting small businesses with financial management for decades. If you need help with your accounting, or you’re mystified by bookkeeping for a small business, get in touch today. Sign up for your free trial of Big Red Cloud’s cloud-based accounting software, and start earning all of the benefits of better money management.

Marc O'Dwyer

After completing a Graduate program in Marketing, Marc’s impressive sales career began at Allied Irish Banks, Pitney Bowes and Panasonic where he received numerous Irish and European sales performance awards and consistently exceeded targets and expectations. In 1992, Marc’s entrepreneurial spirit led him to set up his own business, Irish International Sales (IIS). Initially, this company was a reseller for Take 5 Accounts and Payroll software. Within four years, IIS became the largest reseller of Take 5 in Ireland, acquiring four other Take 5 resellers. He also found time to set up two mobile phone shops under the Cellular World brand and a web design company offering website design services for small businesses. In 2001, he bought the majority share in a small Irish software business, Big Red Book. At that time, the company was losing money. The company became profitable within two months, and Marc then acquired a payroll company to compliment Big Red Books Accounting products. In 2003, IIS were appointed as Channel Partners with SAP for their new SME product, SAP Business One. Marc sold his Take 5 business and concentrated on developing this new market for SAP As a result, by 2007, IIS was recognised as the largest Channel Partner for SAP in EMEA (Europe Middle East and Africa). In 2008, the IIS Sales Manager bought the Company from Marc in an MBO. He launched Big red cloud in June 2012, the online version of big red book, to date the company successfully converts 59% of trials into sales and the number of customers is growing rapidly. Marc continues to run both Big Red Book and Big Red Cloud which now support 75,000 businesses. He is a very keen sportsman, having played rugby for 20 years, represented Leinster at under 16 and under 20 levels, and league squash with Fitzwilliam Lawn Tennis Club for 10 years. Marc has competed in 11 Marathons, including the London and Boston Marathons, and has completed several Triathlons and Half Ironman races. He has also completed six Ironman Races in Austria(x2), Frankfurt (Germany), Nice (France) , Mallorca (Spain) and Copenhagen (Denmark)

This site is registered on as a development site. Switch to a production site key to remove this banner.