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How to Do Bookkeeping: A Small Business Owner’s Guide
Taking control of your finances by learning how to do bookkeeping can be an empowering and cost-effective choice. For many small business owners, bookkeeping is one of those tasks that feels either intimidatingly complex or deceptively simple. The truth lies somewhere in the middle—it’s doable if approached correctly, but it does require some learning and consistent effort.
If you have not already read the preceding article “What is Bookkeeping?,” we recommend that your read that article first.
In this guide, we’ll break down how to do bookkeeping for your small business, dispel common myths, and help you avoid pitfalls like falling behind on your financial records.
Why DIY Bookkeeping Is Doable
The idea of doing your own bookkeeping may seem daunting, but it’s important to know that you don’t need an accounting degree or advanced math skills to learn how to do bookkeeping. Modern bookkeeping software and practical resources have made the process accessible even for those without a financial background.
What’s crucial is the right mindset:
Avoid Thinking It’s Too Hard: Bookkeeping is about organizing and recording. You don’t need an accounting degree, and you don’t need to be an expert tax accountant. You can learn how to do bookkeeping from this website and by watching videos that we link to.
Avoid Thinking It’s Too Easy: While bookkeeping isn’t rocket science, it does require consistency and attention to detail. In other words, respect bookkeeping as the important skill it is.
With a structured approach, you’ll find that learning how to do bookkeeping is not only manageable but can also provide valuable insights into your business.
Step-by-Step: How to Do Bookkeeping for Your Small Business
Choose a Bookkeeping System Decide whether you’ll use a manual system (like Excel) or a digital one (like QuickBooks). For most small business owners, bookkeeping software for small businesses is the best option. It simplifies the process, reduces human error, and often integrates with your bank accounts and invoicing systems. If you can’t justify buying a software subscription, there are such alternatives as Wave and Gnucash. Gnucash is a great free system on which to learn how to do bookkeeping because it emphasizes an understanding of double entry accounting. This is not a sales pitch, as GnuCash is free. Keep in mind that it’s not cloud software and it’s a single-user software. So that means you can’t share direct access with your accountant. However, you can work around this by setting up a shared folder on Google Drive or Microsoft One Drive. You can make backups into that folder, and print financial statements that you then share with your accountant or other people. Yes, I know it might seem a little bit old fashioned to do it that way int todays world of cloud software. Also, the Gnucash home page and interface looks old too. But don’t be fooled by that; you can still use the software to learn how to do bookeeping. GnuCash has a large following of dedicated users, and they have forums where you can learn how to do bookkeeping in GnuCash. At the price of zero dollars and a great open source support forum community, it’s a great system on which to learn how to do bookkeeping.
Set Up a Chart of Accounts A chart of accounts organizes your business transactions into categories like income, expenses, assets, and liabilities. Most bookkeeping software provides templates, but customize them to fit your business needs.
Track Income and Expenses This is the heart of learning how to do bookkeeping. Make it a habit to record all sales, payments, and receipts as they happen. Using a dedicated business bank account simplifies this process.
Reconcile Your Accounts Reconciling means ensuring your records match your bank statements. This should be done monthly to catch errors or discrepancies early.
Generate Financial Reports Once your records are in order, generate basic reports like profit and loss (P&L) and balance sheets. These help you track your business’s health and guide financial decisions.
Back Up Your Data Whether you’re using software or spreadsheets, regularly back up your data to avoid losing important information.
The Bookkeeping Cycle
Understanding the bookkeeping cycle is essential for DIY bookkeeping success. This cycle is a series of steps that businesses follow to track, manage, and close their books each period (usually monthly). The process includes:
Posting to the General Ledger: Organizing transactions by category.
Adjusting Entries: Making end-of-period corrections, such as depreciation.
Generating Financial Statements: Preparing reports like P&L and balance sheets.
Closing the Books: Finalizing records for the period.
Knowing this cycle helps you stay consistent and maintain accurate records.
Common Mistakes in DIY Bookkeeping
Falling Behind: The most common pitfall is procrastinating. Small tasks pile up quickly, and catching up on months of unrecorded transactions can be overwhelming. Learn how to do bookkeeping properly, and commit to weekly bookkeeping sessions to stay on track. In fact some business owners take it a bit further and manage to spend a few minutes on their bookkeeping every day. That’s highly recommended if you can do it and will only take a few minutes of your daily schedule.
Mixing Personal and Business Finances: This complicates your records and can lead to tax issues. Always use a separate business account. Use a separate credit card for business that you use only for business. The credit card can be in your name, but it must be dedicated to business expenses only.
Ignoring Tax Deadlines: DIY bookkeeping also means you’re responsible for staying on top of tax obligations. Mark your calendar with key dates to avoid penalties.
Learning How to do Bookkeeping
If you’re new to bookkeeping, learning the basics is a must. Thankfully, there are many resources to get started:
Online Tutorials: Platforms like YouTube and Coursera offer free courses on beginner bookkeeping.
Books: Look for beginner-friendly guides like Bookkeeping for Dummies. It’s a timeless classic.
Software Training: Most bookkeeping software companies offer free built-in or separate tutorials and customer support to help you learn how to do bookkeeping on their systems.
Workshops and Local Classes: Community colleges and small business organizations often provide affordable training.
Bookkeeping Courses for Beginners: Look for structured online courses that cover everything from recording transactions to financial reporting. (Stay tuned for our own detailed tutorials and recommendations!)
Our site will also feature a series of step-by-step bookkeeping tutorials to help small business owners build confidence and keep their financial records in order.
Is DIY Bookkeeping Right for You?
DIY bookkeeping can save you money and give you a deeper understanding of your business finances. However, it’s not for everyone. Consider your situation:
DIY Bookkeeping Is Best If:
Your business is small or new with a manageable number of transactions.
You enjoy being hands-on with your business’s financial details.
You’re willing to dedicate time to learning and maintaining the system.
Consider Alternatives If:
Your business has complex financial needs or rapid growth.
You don’t have the time or patience to handle financial records consistently.
You’re prone to procrastination or dislike numbers.
Key Takeaways for DIY Bookkeeping
Doing your own bookkeeping is entirely possible with the right tools and mindset.
Stay consistent to avoid falling behind.
Learn the basics and lean on resources like software and tutorials.
Decide early if DIY bookkeeping suits your business, and don’t be afraid to outsource if it doesn’t.
Taking control of your bookkeeping is a powerful step toward understanding and growing your business. Whether you decide to DIY or seek help, the important thing is to take action—because doing something is always better than doing nothing.