26/05/2024

The CTO

The Best Chief Technology Officer

Does a Small Business Need a Bookkeeper? 7 Features of Bookkeeping Software

Does a Small Business Need a Bookkeeper? 7 Features of Bookkeeping Software

If you are a small business, perhaps just a one man show, does it make sense to hire a bookkeeper to keep track of your business? Actually the answer to that depends entirely on your operation and just how involved your business is. If you generate a small number of simple invoices each month, and vendor payments are likewise small in number, then chances are you can save money doing the work yourself using bookkeeping software. If you generate a high volume of invoices or checks, then hiring help may make more sense particularly if the accounting function is taking up significant time that you could use more profitably running your business.

If you go the bookkeeper software route, and some of them are designed for total novices, you’ll want to be sure that you understand these basic accounting items.

1. Cash Or Accrual

Tax laws require that you set up a basis for your accounting and you have the choice of cash or accrual. Most businesses use cash when they first start out as it reflects actual money received and actual money paid out in an accounting period. Accrual is money earned but not necessarily received and expenses that you are liable for but not necessarily paid.

2. Chart Of Accounts

The chart of accounts is the backbone of any bookkeeping system. This establishes accounts for both income and expenses and then further breaks them down by type. For example you can have an account for “Communications” and have it further broken down to “Telephone”, “Cell Phone”, “Internet Provider” and “Postage”. Each item of income or expense will be recorded in the appropriate account.

3. Income And Expense Report

This is an essential report that compares income for a given period of time to expenses for the same time frame. Obviously this let’s you know if you made money or not. It can be as detailed or as basic as you want it to be and it can be an excellent tool to ferret out unusually high expenses and to develop trends in income.

4. Accounts Receivable

The small businessman’s Bible. The accounts receivable is a listing of open client invoices and lets you know just how much you can potentially collect and when. Further, it shows you which, if any, of your clients has not paid within terms and becomes your basic collection tool report.

5. Accounts Payable

This is the report as receivables except it focuses on what you owe. It is a listing of all unpaid invoices from vendors and when they are due. Obviously it can list out vendor invoices that have not been paid within terms.

6. Balance Sheet

This is the report your bank will want if you seek financing for your business. This is essentially a listing of the total value of your assets, liabilities and equity. It’s called a balance sheet because it works off the formula that assets equal liabilities plus equity. This report is also known as the Accounting Equation. Banks will look at the ratio of equity to liability and other measurements to determine your credit worthiness.

7. Real Time Customer Service

One really great feature of doing bookkeeping your self on bookkeeper software is the ability to pull up real time information. When a customer calls with a question on an invoice you can pull the data up immediately and answer the question. Without this ability you would have to call your bookkeeper to get current information and then get back to the customer.

Bookkeeping can be a somewhat tedious process but if you set aside a specific time each day to process the data you can effectively run your own books.