SMALL BUSINESS BOOKKEEPING: Tips & Best Bookkeeping Software Picks

Small Business Bookkeeping

Bookkeeping is essential for a small business if you want your finances to make sense. Initially, you may be the bookkeeper, but as your business expands, you may discover that you no longer have the time to spare. Whether you want to undertake the role yourself, hire someone to assist you, or use software, this brief overview will help you grasp the fundamentals of bookkeeping and why it is so crucial for a successful business.

What is Bookkeeping?

Bookkeeping is a crucial element of business financing, but it is also one of the most difficult aspects of running your own business. You probably didn’t become self-employed because you enjoy looking at spreadsheets and keeping track of your costs. You’re happiest when you’re doing what you love, whether it’s running your craft business, selling goods online, or delivering excellent customer service.

Why do Small Businesses Need Bookkeeping Services?

An accurate, well-kept set of books is a wonderful place to start when it comes to running a profitable business. This is why:

  • You can ensure that you are earning more money than you are spending.
  • You’ll have accurate financial data for planning and budgeting purposes.
  • You can predict and avoid a cash crisis by keeping track of when you need to pay suppliers and when you might expect payment from customers.
  • You’re more likely to discover improper payments (or even fraud) that could cost you money.
  • You are capable of completing correct tax returns.
  • Having your financial information organised makes it easy to collaborate with others, such as lenders, investors, and accountants.

What is Involved in Small Business Bookkeeping?

Bookkeeping is the management of a business’s day-to-day finances. It includes the following:

  • Performing payments (e.g. bills)
  • Obtaining client and customer payments
  • Making certain that your business pays the correct amount of tax
  • Making a tax refund claim for your business (e.g. expenses)
  • Payroll management is the process of correctly paying your employees and HMRC.

Bookkeeping uses three financial records to track payments in and out of the business:

  • Cashbook – This is where you keep track of your cash flow (what goes in and out of your business’s account).
  • Sales invoice – this document keeps track of what you’ve sold, including both paid and unpaid invoices.
  • Purchase invoice – this document documents what you’ve purchased (including services) and how you paid for each purchase.

These are often the very minimum of records (‘books’) you’ll keep – there will almost certainly be more. Maintaining accurate books is essential for financial reporting and is critical if your business is subjected to an audit.

Basic Small Business Bookkeeping Terminology You Should Know

#1. Accounts Payable:

Accounts payable is the account used to track all of the money owed to a third party, such as supplier firms, banks, governments, or anyone from whom you borrowed money. A mortgage is an easy example to consider since when you take one out, you sign a contract telling the bank that you would pay them in instalments over a period of time.

#2. Accounts Receivable:

On the other hand, accounts receivable is the account that maintains track of all the money owed to you by third parties. Customers, banks, companies, or anyone that purchased or borrowed from your business can all be included.

#3. Assets

Assets are essentially all of the stuff that you or your organisation own that can help you run your business successfully. It can include anything from cash, buildings, and land to tools, vehicles, and furnishings.

#4. Balance Sheet:

A balance sheet is a detailed report that breaks down your business’s financial status. This report contains information about your business’s assets, liabilities, and capital. A balance sheet’s purpose is to demonstrate what your business owns and owes.

#5. Bookkeeping:

Obviously, this is something you should be familiar with. Bookkeeping is the day-to-day recording of financial transactions. It aids in ensuring that individual financial transaction records are accurate and up to date.

#6. Capital

Capital is merely the money or other assets that you individually control as the owner, as opposed to the real profit generated by your business or self-employment.

#7. Costs of Goods Sold (COGS)

This is another straightforward one since it just represents all of the money you spend on products or services that you intend to sell to clients.

#8. Depreciation

Depreciation occurs when an asset loses value over time, which might occur as a result of wear and tear, for example. It is the measurement of a reduction in value.

#9. Equity

Equity is defined as all of the money you invest in the company as the owner, as well as all of the accumulated profits. Your equity as a small business owner is recorded in a capital account.

#10. Expenses:

This includes all money spent on running your business that isn’t directly tied to the selling of goods or services.

#11. General Ledger Account

A general ledger account is one that you utilise to store, sort, and summarise all of your transactions. These accounts are listed in the general ledger, which also contains the balance sheet and revenue statement.

#12. Income Statement

This is a financial statement that summarises your financial activity over a specific time period. It computes your net profit or loss after deducting your income, costs of goods sold, and expenses.

#13. Journal

Journals are where bookkeepers keep track of their everyday transactions. You’ll have individual journals for each active account you utilise, such as cash, accounts payable, and accounts receivable.

#14. Liabilities

Liabilities are all of the debts that you owe. This can include everything from loans you’ve taken out to delinquent invoices you still owe.

#15. Payroll

If you own a small business and have employees, payroll is the method by which you pay them. It is a significant part of bookkeeping and entails reporting a variety of payroll characteristics to the government. This includes taxes that must be paid on behalf of employees, as well as remuneration and other benefits.

#16. Revenue

Revenue is all of the money you make from selling your services and items. Some businesses may generate revenue in unconventional ways, such as by selling assets that the business no longer requires.

#17. Trial balance

Trial balance is used to ensure that your books are in balance before compiling all of the critical information for the financial reports and closing the books for the accounting period.

What is the distinction between Small Bookkeeping and Accounting?

Accounting and bookkeeping are two concepts that are frequently used interchangeably in business finance. Bookkeeping refers to the day-to-day administrative chores that maintain track of the money your business gets and spends. Accounting is a high-level form of business finance that examines a business’s financial health through reports and predictions.

Auditing, analysis, and financial reporting are common accounting responsibilities, such as preparing a balance sheet to report on assets and liabilities or performing a cash flow prediction. These reports provide a more analytical perspective of your business and can be valuable when making critical business choices.

8 Small Business Bookkeeping Tips

The following tips will assist you in getting started with bookkeeping for your small business.

#1. Keep detailed records of all payments.

Use your books to log every payment and mark when it was paid or received so you can readily find it later if you need to refer to it.

#2. Select an accounting technique.

Your bookkeeping will serve as the foundation for your accounting, so choose a method early on. Traditional accounting tracks income and costs on the invoice date. Cash accounting records them on the day when the money is received or paid. Cash accounting eliminates the possibility of having to pay tax on the money you haven’t yet received, but it’s only possible if your turnover is less than £83,000 per year.

#3. Be tough about deadlines.

Never make late payments (particularly to HMRC), and set your clients a payment date so you can properly chase them. Take note of any late payers and consider not working with them if they continue to fail to pay. This is referred to as credit control, and the goal is to maintain a healthy cash flow.

#4. Keep a record of your expenses

To decrease your overheads, you can claim tax credits on a variety of business expenses. Receipts will be required to prove your HMRC claims, so keep them safe and organised in different business categories.

Keep business and personal expenses separate so you may readily identify which ones can be claimed against profit to decrease tax.

#5. Organize your bank statements and bills.

Alternatively, don’t squander your bookkeeper’s time and money. Check that all bank statements and invoices (buy and sales) are present, correct, and in chronological order. Otherwise, you’ll be paying your bookkeeper for the time spent tracking and organising these records, which you could easily do yourself. Worse, if documents go missing, you may face a fine for late filing.

Keep separate files for paid and unpaid invoices for purchase invoices (i.e. money owed), and file both alphabetically by supplier name. Always remember to transfer invoices after you’ve paid them. For sales invoices (money owing to you), number them consecutively in the order in which they should be paid so that you can efficiently hunt them down.

#6. Select appropriate Small Business Bookkeeping software

You may not need specialised business bookkeeping software; Microsoft Excel or its freeware alternatives can suffice. However, if your requirements grow, you may require a more specialised bundle. Inquire with your accountant about the business bookkeeping software they recommend.

#7. Compile monthly reports

Creating reports at least once a month is the most reliable approach to remain on top of your business’s finances and avoid unpleasant surprises. As a bare minimum, your monthly reports should comprise a profit-and-loss statement and a balance sheet. You now have a running commentary on how well your business is doing.

#8. Recognize when it’s time to outsource your bookkeeping.

If your business is small at first, it may make sense to do your own bookkeeping. Keep track of how much time you spend on the books each week as you progress. Calculate the monetary value of your own time (for example, how much you earn for the business each hour) and compare it to the cost of a bookkeeper. A professional bookkeeper may just need a couple of hours to handle a month’s books, so it won’t be long until this is more cost-effective.

How Can Small Business Bookkeeping Software Assist You?

Many small firms use online small business bookkeeping software to expedite these tasks and reduce the likelihood of human data entry errors. These instruments can:

  • Pull transaction data directly from POS systems, invoicing software, and banks
  • bank reconciliation is significantly accelerated
  • bills are automatically paid
  • People who owe you money should receive automated invoice reminders.
  • notify you when sales invoices are paid
  • allow you to monitor your cash flow from your phone

Small Business Accounting and Bookkeeping Software

Small business bookkeeping software used to be complicated and time-consuming. It was often better suited to giant corporations than to small firms. There is now a wide variety of accounting software created specifically for small enterprises and the self-employed. Many of the items are affordable (or even completely free).

This sort of software is intended to help you manage your business’s finances by assisting you with tasks such as bookkeeping, invoicing, purchase orders, inventory, and payroll. The solution you choose will normally contain reporting options as well, allowing you to track your cash flow and profit and loss, for example.

Small Business Bookkeeping Software Comparison

#1. FreeAgent

Because FreeAgent is aimed at freelancers and small enterprises, it concentrates on day-to-day administrative duties such as invoicing, time tracking, and expenditure management. It is a suite of cloud accounting software. You can establish invoice reminders and upload receipt images. Pricing begins at £19 per month (for sole traders), with a 50% discount for the first six months. FreeAgent claims to be ready for Making Tax Digital and has been sending digital VAT reports to HMRC on behalf of its customers since 2010.

#2. QuickBooks

QuickBooks is a cloud-based accounting software developed by Intuit, one of the industry’s pioneers.

Freelancers can sign up for the basic Self Assessment package, which allows them to track their self-employed income, while small firms can utilise it for VAT and payroll. There are also numerous reporting and monitoring tools. Through the QuickBooks App Store, you can connect your account with over 700 third-party programs, allowing you to save time on data entry, payroll processing, backup capture, and inventory tracking. Subscriptions begin at £8 per month (for the Self Assessment package), however, costs are occasionally reduced for the first six months.

Prices start at £12 a month for small enterprises and VAT-registered companies who want to use the accounting and VAT functions. These are the packages that are ready for the Making Tax Digital initiative.

#3. Xero

Another major player in cloud accounting software is Xero. Invoicing, inventory, payroll, and expense claims may all be handled with Xero. It can also import your banking, credit card, and PayPal data, and there is an app for both iPhone and Android. Prices begin at £10 a month but are occasionally discounted for the first few months. This package allows you to submit VAT to HMRC for Making Tax Digital.

#4. Zoho Books

Zoho Books can be integrated with a variety of apps from Zoho’s own suite as well as third-party apps. It can assist you in issuing bills, categorising spending, and tracking inventories. Zoho Books is part of a larger suite of cloud-based software, which also includes Zoho Invoice and Zoho Expense, albeit there is no payroll feature available in the UK currently. Zoho Books may also connect to your bank account to get real-time cash flow data. Prices begin at £10 a month, with the possibility of a free trial before purchasing. Making Tax Digital is compatible with Zoho Books.

#5. FreshBooks

The user-friendly interface and lack of jargon are two advantages of cloud-based FreshBooks. It is intended for freelancers and small enterprises with modest accounting requirements, therefore it concentrates on invoicing and expenditure monitoring. It interfaces with applications such as PayPal and Zendesk.

FreshBooks’ ‘Lite’ package starts at £11 per month, though this is sometimes lowered for the first three months. It also provides a free trial to evaluate if it’s right for you. FreshBooks claims that its packages include everything you need to stay compliant with Making Tax Digital, so make sure it meets your requirements.

#6. Sage Cloud Accounting for Business

Sage is a large commercial software company, but their cloud accounting software product for small enterprises is Sage Business Cloud Accounting. It can assist you with invoicing, cash flow, and payroll, among other things.

pricing starts at £12 per month, but this is occasionally lowered for the first few months. Sage claims to be prepared for Making Tax Digital.


Whether you do your own small-business bookkeeping or hire an expert, learning the fundamentals can help you better manage your finances. You’ll save time chasing down receipts, avoid costly mistakes, and gain valuable insights into the potential of your business.

And don’t forget our most critical piece of advice: when setting up your general ledger and chart of accounts, always consult with a CPA, bookkeeper, or other financial professionals. Because, while you can go it alone, working with an expert from the start will save you a lot of time and stress.

Small Business Bookkeeping FAQs

Can I do my own bookkeeping?

If you’re just getting started, doing your books on your own, and are still in the hobby stage, single-entry is definitely the best option for you. It’s easy to use, quick, and suitable for very basic bookkeeping. Double-entry is more complicated, but it is also more sturdy, and it is better suited for established businesses that have progressed beyond the hobby stage.

How much should a small business bookkeeper charge?

A bookkeeping service would typically charge between $300 and $2,000 per month, depending on the amount and complexity of work necessary.

Can I start a bookkeeping business with no experience?

You can establish a profitable bookkeeping business even if you have no prior expertise. However, you must be eager to assist business owners in organising their money and possess strong computer abilities.

How much time do small business owners spend on bookkeeping?

This equates to 40% of small business owners spending more than 80 hours per year, 18% spending 41 to 80 hours per year, 15% spending 21 to 40 hours per year, and 28% spending fewer than 21 hours per year.

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You can establish a profitable bookkeeping business even if you have no prior expertise. However, you must be eager to assist business owners in organising their money and possess strong computer abilities.

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This equates to 40% of small business owners spending more than 80 hours per year, 18% spending 41 to 80 hours per year, 15% spending 21 to 40 hours per year, and 28% spending fewer than 21 hours per year.

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