Doing Your Own Bookkeeping - Can You?
Bookkeeping software is marketed as being so easy that anyone can do it. And it can seem very simple: type in the amount and the date and voila, you’re a bookkeeper!
Unfortunately, no. It’s not that simple.
If you want to do your own bookkeeping, you should grok a few core concepts:
Account Types: You will need to be able to apply income and expenses to their correct categories. Do you know the difference between the tools and the supplies accounts? What dates do you use for sales? How do you post the receipts you get from your customers if they’re partly paying a bill? Where do bank charges live? Where do bad debts go to die? What in the world is an amortization?
Cash Expenses: You go to the bank machine and draw out $100. You get a coffee at a shop, tip the barista. Then you go down the road and get some gas. Then you buy some office supplies, including a notebook for your kid’s school. Then you go home and dump the change and the receipts on your night table. You are registered for GST. How do you post that?
Balancing The Bank: All bookkeeping is driven by how it’s paid. So, if you go to put in a receipt, is your bank account set up correctly? Do you know what general ledger account it is? Was the invoice and the payment made on the same day? Then when everything is posted to the bank (income, expenses, bank charges, transfers and whatever) you need to be able to reconcile the balance in the general ledger with the balance on your bank statement.
Personal Portion of Business Expenses: Say you use your car for both business and personal use. How do you manage the expenses? What if the gas goes through the business account, but the insurance goes through your personal account? How do you post lease payments? Is there GST in them, or GST and PST, or neither? What if it was a purchase? How do you post the payments? Will you need an interest schedule?
So, yes, if you want to do your own books in accounting software and you’ve understood everything above, probably you can go for it.
But if not, don’t fret, you have other options.
The Spreadsheet: If you’re just a small business without payroll or anything fancy, you can set up a spreadsheet with relevant category columns and formulas to balance the bank account as you go. Here I highly recommend that you get a pro to set it up for you. It shouldn’t take them more than a couple of hours and then you have it for years. You can ask the professional to look it over now and then, making any small corrections and giving you feedback on how it’s going. I have clients that have been using their same spreadsheets for over a decade, so it’s worth it to have it set up properly.
Hire a Bookkeeper: Okay, there’s the obvious. Hire someone to do it for you and get on with your life. Probably this is the more expensive option, but in the long run, it’s done right the first time and you always know where your business it at. (Obviously, we're here to help.)
Online Product: You can subscribe to an online accounting software and share the duties with your bookkeeper. A lot of clients like to do their own invoicing and maintain their receivables but don’t mind giving the rest over to the bookkeeper. It saves you a bit of money since handling the revenue can be time-consuming, but you still get a clean set of books at the end. Over time, you can learn more and more to add tasks as you go, moving towards bookkeeping independence, if that's your goal.
Just always remember that you have choices. Every business is different from every other business, and it’s okay for you to find the right solution to fit you and your life.