10 Functions of a Bookkeeper for a Small Business
Our good friend Adam is a small business owner who started his business two months ago. When talking about the business, he said he’s doing a million tasks at once. He means meeting clients, marketing, managing employees, and keeping track of business finances.
He says, one day, he’ll find himself in mountains of receipts and invoices and thousands of spreadsheets. “I can’t seem to keep track of finances. I didn’t sign up for this.” He said.
After hearing his ramble, we said, “You know you can hire a professional firm like Tangent Consulting, right? But let’s tell you about the 10 functions of a bookkeeper so you can learn more about them.”
And trust us, by the end of this, he wondered what he was doing without hiring one.
1. Managing Accounts Payable and Receivable
Managing a small business can be hard, but keeping track of all the money flowing in and out can make your head spin. Surprisingly, cash flow is a major problem for small businesses. According to a US Bank study, 82% of small businesses fail due to cash flow problems.
Accounts payable are the money you owe, and receivables are the money someone owes you. A bookkeeper manages your accounts payable and receivable, sends out invoices, follows up if someone hasn’t paid yet, and keeps records.
They also pay your bills on time, so you don’t have any unfinished business with vendors or suppliers.
Your bookkeeper’s cash flow management ensures your business stays liquid and avoids the dreaded cash crunch.
2. Reconciling Bank Statements
Bank statement reconciliation might sound like something out of a sci-fi movie, but it means matching your financial records with your bank account transactions.
It’s something you may not have heard about, like our friend Adam. A professional bookkeeping service like Tangent Consulting reviews and compares your bank statements with your business financial records. We identify any discrepancies like missing payments, banking errors, or other issues.
The great thing about this is that when tax season comes, you’ll have reconciled accounts and will not have to be on the IRS or CRA’s naughty list.
3. Payroll Processing
Payroll is one of those tasks that you can’t afford to get wrong. After all, your employees are expecting their salaries to be on time. A bookkeeper makes sure that your small business payroll processing gets done on time with tax deductions.
But that’s not all. Payroll processing also considers employees’ overtime, bonuses, and compliance with labor laws.
4. Preparing Financial Statements
Financial statements are your small business’s report cards. They illustrate how things are going in your business and where you stand financially.
A bookkeeper prepares three financial statements for you:
Balance sheet
It shows the business’s assets, liabilities, and equity.
Income Statement
An income statement calculates your profit and losses.
Cash Flow Statement
We already touched on cash flow earlier. A cash flow statement keeps track of money coming in and going out.
Some of you might wonder, “Why do I need these statements?”
It’s simple. These statements aren’t only helpful in keeping track of day-to-day transactions; they are also helpful when you apply for small business loans or investment opportunities.
5. Budgeting and Forecasting
If you have taken a trip without a budget, you know how things can get out of hand. The same goes for your business. Budgeting and forecasting are important to limit your expenses and analyze future spending.
A bookkeeper helps you prepare a budget that matches your business goals so you can prioritize your spending. A professional firm also helps you do forecasts involving future revenues, cash flow, and expenses.
6. Handling Tax Compliance
If you are like Adam, you are also struggling with your small business taxes. Taxes are a certainty, and no one can deny that. But the thing with Adam is (you might be facing the same issue) tax compliance can be hard. You need to follow countless things, like income tax, payroll tax, and sales tax rules.
A good bookkeeping service provider ensures your business complies with all the taxes before deadlines. They prepare your tax returns, calculate your tax liabilities, and ensure your small business can take advantage of all available deductions and credits.
Do you know that 40% of small businesses incur IRS penalties for incorrect filings?
These penalties can be costly and stressful, so to avoid headaches, you must rely on a bookkeeper.
7. Expense Tracking
Keeping track of expenses can be tiring, as you may not remember some. A bookkeeper is like an eagle who always looks for the fish—we mean expenses.
They keep track of every penny you spend, from office supplies to travel expenses. This helps you manage expenses and devise cost-effective solutions.
Also, keeping track of expenses ensures you aren’t missing tax deductions. This is because every business expense can reduce your tax income.
8. Maintaining General Ledgers
Without flexing our accounting muscles, general ledgers keep track of all your business financial transactions so you can prepare financial statements accordingly. They record everything from sales to purchases to revenues to profit/loss.
Generally, ledgers are used by professional firms, and they help businesses comply with accounting standards.
9. Financial Analysis
If you think bookkeeping is all jotting down numbers, think again. A bookkeeper analyzes your business’s financial data to tell you about the overall business performance. They compare the current results with the previous ones and identify areas for improvement.
The good thing about financial analysis is that it gives you valuable insights, such as whether you are spending too much on something or how seasonal fluctuations affect your cash flow.
10. Managing Inventory
If your small business sells products, then you have to keep track of your inventory.
But why bother when you have a bookkeeper? A bookkeeper tracks inventory levels and monitors turnover rates. They also make sure to keep up with demand so you know when to buy inventory again.
The bookkeeper does this because buying inventory is related to cash flow. If you spend too much on inventory, it can increase storage costs. On the other hand, if you send too little, you may miss sales.
Final thoughts
So, these are the 10 functions of a bookkeeper for a small business. If you are like Adam, you would think your business needs a bookkeeper asap.
But where can you find a bookkeeper?
What if you can get professional bookkeeping services while being given industry-backed solutions? Then you need to try our bookkeeping services. We handle:
- Bank reconciliation and transaction recording
- Accounts receivable and accounts payable management
- Financial statement preparation and analysis
- Tax preparation assistance
- Customized reporting and insights, and more.
You can check out all our bookkeeping services here.
FAQs
What are the 5 elements of Financial Statements?
The 5 elements of Financial Statements include assets, liabilities, income, equity, and expenses.
How do you know if you need a bookkeeper?
If you:
- Have no time
- Can’t keep track of taxes
- Don’t understand the numbers game
- Don’t understand about taxes
- Your business profits are not increasing
Then you need bookkeeping services.
Do I need both a bookkeeper and an accountant?
Most small businesses need a bookkeeper and an accountant, as taxation is more of a CPA (certified public accountant) thing. But if you hire a firm like Tangent Consulting, you don’t need both; we offer both services.
