“Entrepreneurs can change the way we live and work. If successful, their revolutions may improve our standard of living. In short, in addition to creating wealth from their entrepreneurial ventures, they also create jobs and the conditions for a flourishing society.” – Entrepreneur
Considering the increasing cost of living, economic downturn and rising unemployment rate, the value of entrepreneurs cannot be understated. And while running a business comes with many challenges, getting your bookkeeping basics right from the start can go a long way in achieving overall success down the road.
What is bookkeeping?
Bookkeeping is the process of tracking the company’s financial transactions to keep a record of what money is coming into the business, what money is going out of the business, what is owed in tax and what tax deductions can be claimed. If you get paid for work done, then you can operate with cash accounting. If you’re working with credit, then you’ll have to use an accrual accounting system.
Bookkeeping basics: The First Steps
Once you’ve started a business, there’s a lot on the go, and the focus is generally on getting things up and running, securing clients, starting projects, and getting some money in. While this is obviously important, entrepreneurs need to remember that bookkeeping is the lifeblood of any business and, if not done properly, could halt operations before they even get going. But not to worry, here’s a look at the six bookkeeping basics to focus on – and then you’re set!
1. Register your business
The first thing to do as an entrepreneur is to register your business, but what you register as will depend on the size and type of your operation. Registration can be done either with the Companies and Intellectual Property Commission (CIPC) or with a bank, among them Nedbank and First National Bank. You may also require a business license, depending on your business type. In South Africa, there are five different types of companies:
- A private company: These are profit-making companies with names that end in (Pty) Ltd (Proprietary Limited). There are no public shares, and most are owner-managed companies.
- A personal liability company: This is a private, for-profit company with a name ending in PLC (Personal Liability Company). All directors are responsible for company debts, and these are usually used by accountants or attorneys.
- A public company: This is a for-profit company listed on the exchange with a name ending in Ltd (Limited). The company requires auditing with stricter controls.
- A non-profit company (NPO): This company is for public benefit and includes charities, homeowners associations and charities.
- A state-owned company: These are owned by the state, such as municipalities.
2. Separate your business and personal expenses
This is where it often gets tricky and where entrepreneurs find themselves drowning in bookkeeping requirements. From the start, you should have a separate business and personal account and buy goods separately. A savings account is also a good idea so that you’re not spending everything that is coming in and putting aside for tax. This will really make your tax requirements that much simpler! A business account will allow you to stick to a budget, organise your accounting records, and keep your finances in order. Make sure you consider the bank charges, offerings and locations before committing to one for your business account.
3. Keep a good track of your records
Keep a record of everything – you’ll thank us when you get audited one day! This means filing all your business invoices, receipts, and expenses daily. Don’t just stuff them into a box; try to have an online or physical filing system so that you can find what you need when you need it… and quickly. Ideally, you want to keep a digital record and store it in the cloud for safekeeping. Maintaining this track record essentially creates an audit trail to protect your business from fraud and improve accuracy overall.
4. Categorise all transactions
Just with filing, you must ensure that you maintain your bookkeeping categories to ensure what money is coming in and what money is going out. The account types include:
- Assets: This is what your business owns and includes cash, bank accounts, inventory, equipment and even intellectual property.
- Liabilities: This is when you take out a loan or owe money of any kind.
- Equity: This is where the money is given to a business by the owner, so there’s no expectation of getting the money back. This includes capital, retained earnings and dividends.
- Revenue: This is money received from sales and services where customers make payments.
- Expenses: This money comes from your business for ongoing operations.
5. Keep on top of deadlines
When things start taking off, keeping on top of your business obligations will take up a lot of time. But it’s really important that you don’t let those bookkeeping deadlines go by! It’s essential to note all those tax deadlines and requirements ahead of time so that you don’t get yourself into a situation where you incur penalties. Where possible, file your tax returns at the earliest possible date. That way, you can address any missing items or unexpected issues in good time.
6. Incorporate professional software
The best bit of bookkeeping advice? Rely on the digital solutions available. Bookkeeping software exists for businesses of all types and sizes, and they take all the hassle out of bookkeeping, allowing you to focus on your business demands. This allows for the automation of processes such as dealing with number calculations with great features like pricing and reports.
What are the benefits of good bookkeeping for entrepreneurs?
Once you have all the bookkeeping basics in place, you will start to see the benefits of operating a well-run business. These include:
- Budgeting for expenses effectively
- Improved efficiency with better business forecasting
- Eradicating the headache that is tax season
- Monitoring your growth and planning for increased revenue
Take it back to basics by getting in touch with Omni Accounts about their Omni Trader Bundle – ideal for small-scale, entry-level, VAT-registered businesses. This is the ultimate in bookkeeping basics for entrepreneurs! Are you a small business or sole proprietor in the retail or service sectors needing financial accounting functionalities and entry-level stock control? In that case, this is the bundle for you.