Monthly Bookkeeping Tasks for Entrepreneurs: A Step-by-Step Guide
It's time to get to the books. But what exactly does bookkeeping involve on a monthly basis?
Our previous posts focused on small business bookkeeping tips and why bookkeeping is important. But some of you may not yet know how to actually do bookkeeping.
In this blog we help you understand the tasks involved in keeping your books in order.
1. Record All Transactions
The most important step in bookkeeping is recording all your financial transactions. This includes every payment made to vendors, every customer payment received, and any other expense incurred. Keeping a timely and accurate record is key to avoiding confusion later and knowing your business' health. You can make life miserable doing this manually or, make it easy by automating it using bookkeeping software. Fortunately, most solutions integrate with your bank and credit card accounts as well as certain apps like payment vendors. Automating this step not only saves time but also minimizes errors.
Tip: Invest in software like Quickbooks Online, Xero, etc to make life easier. Make sure all your business accounts are connected and add any additional app plug-ins that can help streamline your business.
2. Categorize All Transactions
After your transactions are recorded, you need to categorize them. Categorizing ensures that each transaction is correctly classified, which directly impacts your financial statements. Getting these classifications right is crucial for understanding your financial health.
This may take some time at first, but a good bookkeeping software will suggest categories based on previous entries. But remember, regularly reviewing and adjusting these categories is key as misclassified transactions can lead to incorrect reporting.
Tip: Use consistent naming conventions and categories each month. If unsure about a category, consult a bookkeeping professional.
3. Ensure Accounts Receivable and Payable are Up to Date
For healthy cashflow management, keep a close eye on your accounts receivable and payable. Make sure all invoices have been sent out and that recorded payments match your bank deposits. Also verify that any bills you owe are logged correctly. This step is important to avoid late fees, maintain a good relationship with suppliers, and get an accurate view of your cashflow.
Tip: Set reminders to follow up on unpaid invoices and to schedule payments for upcoming bills to avoid missing deadlines.
4. Check Undeposited Funds and Make Deposits
Undeposited funds can easily be overlooked which can lead to discrepancies. Take time to review all undeposited funds and ensure they are correctly deposited. This process ensures that your cash account stays accurate and that there are no surprises when it comes time for reconciliation.
Tip: Regularly check the "Undeposited Funds" account in QuickBooks Online to see if there are any outstanding amounts that need to be deposited.
5. Handle Payroll (If Applicable)
If you have employees, payroll should be handled promptly every month. This involves processing payroll, recording the payroll transactions in your bookkeeping system, and making the necessary tax payments. Payroll is a time-sensitive task and managing it efficiently helps you ensure that your employees are paid accurately, on time and remain happy.
Tip: Use payroll services integrated with your bookkeeping software to automate deductions, tax filings, and direct deposits.
6. Handle Sales Tax (If Applicable)
If you are required to collect sales tax, make sure to calculate the sales tax accurately each month. Confirm that all sales transactions are accounted for and ensure the appropriate sales tax has been added. Make sales tax payments on time to avoid fines or interest from late payments.
Tip: Review the sales tax report in your bookkeeping software to verify that all taxable sales are included and the correct amount of sales tax is being filed.
7. Reconcile Accounts
Reconciling is a step that ensures the transactions recorded in your books match what's in your bank and credit card account - there may be a few others depending on your business but these are the most common. This helps catch any discrepancies, such as forgotten transactions, double entries or errors. Typically, reconciling involves comparing your bank statement to your recorded transactions for the month.
Doing this monthly means you can catch and resolve errors quickly, which is much easier than attempting to fix several months of discrepancies all at once. Many bookkeeping tools have a reconciliation feature that allows you to connect directly to your bank, making this process more straightforward.
Tip: Set aside a specific time each month for reconciliations, ideally after all transactions for the month have cleared. This routine makes bookkeeping much more manageable.
8. Review Financial Statements
Once your accounts are reconciled it's time to review your financial statements. The three essential reports you should examine monthly are:
Income Statement (Profit & Loss): This tells you whether your business was profitable over the past month, showing revenues and expenses.
Balance Sheet: Provides a snapshot of your business's assets, liabilities, and equity, showing the financial stability of your company.
Cash Flow Statement: Shows the movement of cash in and out of your business, helping you plan for future expenses or identify if cash reserves are depleting.
Reviewing these statements helps you catch any irregularities and offers valuable insights into your business performance. It’s your opportunity to identify trends, assess your spending, and make better-informed financial decisions.
Tip: Are you overspending on certain categories? Check by using your income statement to identify areas where you can cut back.
Final Thoughts
Staying on top of these monthly bookkeeping tasks will help you maintain a clear picture of your business finances, save time during tax season, and identify potential opportunities or challenges early. If bookkeeping feels overwhelming or takes you away from focusing on growing your business, consider hiring a bookkeeper to manage these tasks efficiently.
Ready to streamline your bookkeeping process? Let us help you unlock financial clarity and give you more time to focus on growing your business!
Schedule a free consultation with us today and start your journey toward financial clarity.
