DIY Bookkeeping: A Beginner's Guide

One of the most common questions we receive from people who are just starting out and don't have the budget to hire a professional bookkeeper is: "How can I do it myself?" On the surface, bookkeeping might seem as straightforward as recording expenses and revenues. But without a basic understanding of finance and relevant financial reporting and tax regulations, things can easily go awry.

Professional bookkeepers and accountants often spend years acquiring their education and on-the-job training. They possess the necessary knowledge and experience to do bookkeeping for their clients effectively and efficiently. You cannot expect to master the craft by watching a few social media videos or reading a few Google articles. There is a lot that can and does go wrong when you're unfamiliar with the terrain. You may find the time, hassle, and potential mistakes don't offset the money saved by doing it yourself.

However, if you're still keen to learn, we're here to help. Here are some basic steps to set you on the right path:

Step 1: Separate Your Finances

The first step in good bookkeeping is to separate your personal and business transactions. This allows for better financial clarity and makes it easier to track your business's performance. Open a business bank account and credit card for all business-related expenses and revenues, keeping them separate from your personal finances.

Step 2: Choose Your Bookkeeping Method

The next step involves choosing between cash and accrual bookkeeping methods. In the cash method, you record transactions when cash is received or paid. In the accrual method, you record income and expenses when they're earned or incurred, regardless of when cash is exchanged. The best method for you depends on your business's size, type, and financial situation. If you're unsure, consult with a professional to determine what's best for your business.

Step 3: Select a Bookkeeping System

Choosing a bookkeeping system is an essential part of the process. This system can range from sophisticated cloud accounting software like Xero or QuickBooks to a simple spreadsheet if your business has fewer transactions. The key is to choose a system that fits your needs and abilities.

Step 4: Set Up a Chart of Accounts

The chart of accounts is the backbone of your bookkeeping system. It's a categorized list of your company's accounts that record transactions. This includes income, expenses, assets, liabilities, and equity. Customizing it to fit your business needs ensures that you can easily track and categorize transactions, aiding in financial analysis and management.

Step 5: Document Everything

Proper documentation is critical in bookkeeping. Make sure to save all invoices, bills, receipts, and other records of business transactions. This not only helps in tracking your financial activities but is also crucial for tax purposes. It's recommended to keep these documents for at least five years in case of an audit.

Step 6: Regularly Review Your Book

Good bookkeeping requires regular attention. Document all sales, expenses, and other transactions promptly and accurately. Regular reviews and reconciliations will ensure your records match your bank statements, preventing discrepancies and providing a reliable financial snapshot of your business.

Remember, navigating the complexities of bookkeeping can be challenging without a solid background in finance.

But, don't worry. Help is just an email away. If you have any questions or need assistance with your finances, don't hesitate to contact us at alice@cleverlyaccounting.com.au.

Bookkeeping can be a daunting task, but with careful planning and organization, you can take control of your business finances and keep them in order.