How to learn bookkeeping for small business? First, you’ve come to the right place. It may be a bad pun but literally there is a lot to learn in accounting. If you feel intimidated, don’t worry! I was too when I first started out. However, bookkeeping for small business is not that complicated and can be learned easily. I’ve been teaching accounting for the last 5 years and have seen many students literally become bookkeeping wizards within a few months.
In this article, I’ll share with you what you need to do to master bookkeeping for small business.
Table of Contents
Understanding Assets, Liabilities, and Equity When Balancing the Books
Effective bookkeeping requires an understanding of the firm’s basic accounts. These accounts and their sub-accounts make up the company’s chart of accounts. Assets, liabilities, and equity make up the accounts that compose the company’s balance sheet.3
Assets are what the company owns such as its inventory and accounts receivables. Assets also include fixed assets which are generally the plant, equipment, and land. If you look you look at the format of a balance sheet, you will see the asset accounts listed in the order of their liquidity. Asset accounts start with the cash account since cash is perfectly liquid. After the cash account, there is the inventory, receivables, and fixed assets accounts. Those are tangible assets. You can touch them. Firms also have intangible assets such as customer goodwill that may be listed on the balance sheet.
Liabilities are what the company owes like what they owe to their suppliers, bank and business loans, mortgages, and any other debt on the books. The liability accounts on a balance sheet include both current and long-term liabilities. Current liabilities are usually accounts payable and accruals. Accounts payable are usually what the business owes to its suppliers, credit cards, and bank loans. Accruals will consist of taxes owed including sales tax owed and federal, state, social security, and Medicare tax on the employees which are generally paid quarterly. Long-term liabilities have a maturity of greater than one year and include items like mortgage loans.
Equity is the investment a business owner, and any other investors, have in the firm. The equity accounts include all the claims the owners have against the company. The business owner has an investment, and it may be the only investment in the firm. If the firm has taken on other investors, that is reflected here.
In bookkeeping, you have to balance your books at the end of the year. The bookkeeper has to keep careful track of these items and be sure the transactions that deal with assets, liabilities, and equity are recorded correctly and in the right place. There is a key formula you can use to make sure your books always balance. That formula is called the accounting equation:
Assets = Liabilities + Equity
The accounting equation means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Liabilities are claims based on what you owe vendors and lenders. Owners of the business have claims against the remaining assets (equity).
Income Statement and Bookkeeping: Revenue, Expenses, and Costs
The income statement is developed by using revenue from sales and other sources, expenses, and costs. In bookkeeping, you have to record each financial transaction in the accounting journal that falls into one of these three categories.
The information from a company’s balance sheet and income statement gives the accountant, at the end of the year, a full financial picture of the firm’s bookkeeping transactions in the accounting journal.
Revenue is all the income a business receives in selling its products or services.4 Costs, also known as the cost of goods sold, is all the money a business spends to buy or manufacture the goods or services it sells to its customers. The Purchases account on the chart of accounts tracks goods purchased.
Expenses are all the money that is spent to run the company that is not specifically related to a product or service sold.5 An example of an expense account is Salaries and Wages or Selling and Administrative expenses.
A bookkeeper is responsible for identifying the accounts in which transactions should be recorded. For example, if the business makes a cash sale to a customer and your business uses double-entry bookkeeping, you would record the cash received in the asset account called Cash and the sale would be recorded in the revenue account called Sales.
- Bookkeeping is the process of keeping track of every financial transaction made by a business firm from the opening of the firm to the closing of the firm.
- Accounting analyzes, reviews, interprets, and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm.
- In cash accounting, you record your transaction when cash changes hands. Using accrual accounting, you record purchases or sales immediately, even if the cash doesn’t change hands until a later time,
- Effective bookkeeping requires an understanding of the firm’s basic accounts. These accounts and their sub-accounts make up the company’s chart of accounts.
- A business’s six basic accounts are Assets, Liabilities, Equity, Revenue, Expenses, and Costs.
How to Become a Bookkeeper from Home
Step 1: Invest in Your Work Tools
Deciding to learn how to become a bookkeeper means you should also be willing to invest in this career path.
You’re essentially training to become a virtual bookkeeper, which means you’ll be working remotely — most likely as a third-party service provider to businesses.
It’s only fitting that your first investments are a good computer and a reliable Internet connection. These are the two work tools you‘ll use the most, so they must be up to the task.
It’s also good to invest in a mobile or landline phone service as they are your means to reach customers and colleagues.
You can use your personal mobile and landline while you’re still setting up your business, but eventually, you’ll have to separate your business communications.
Step 2: Get Basic Bookkeeping Training
Opting to make a career out of virtual bookkeeping is a great choice. Entrepreneur magazine ranked accounting and tax services as the “most profitable” small business.
There’s no denying you can achieve a lot with this career path, and you can learn how to become a bookkeeper through training courses. You don’t even need related work experience to qualify for bookkeeping training.
If you have no previous experience in the accounting industry, this means you need to pick your bookkeeping courses wisely. They should cover all the essentials you need to learn to be a competent and capable bookkeeper.
With Bookkeeper Launch, not only will you learn the technical side of bookkeeping, but you’ll also get guidance on how to start your own bookkeeping business.
These days, it’s not just about knowing how to do the job — real-world skills are also very important. You must learn how to create an efficient bookkeeping system, set up your business, and deal with clients daily.
Bookkeeper Launch equips you with comprehensive bookkeeping and business skills so that you can succeed in this career path.
Step 3: Learn How to Use Accounting Software
Aside from learning the essential concepts and how-to’s of bookkeeping, you also need to familiarize yourself with accounting software. You can study the basics through online tutorials or get hands-on training from professional bookkeepers.
Accounting software know-how can make you an even more valuable asset to clients. Software tools help streamline the bookkeeping process, which means you can do your job efficiently.
Accounting software like QuickBooks also helps keep startup costs at a minimum.
When you pick an online accounting program, you should take into consideration both your clients’ and your personal financial management. Remember that you’ll also use it to manage your own finances.
As software and programs are often not offered for free, it’s up to you to pick one where you’ll get value for money. Here are some of the things you should consider when choosing an accounting software or program:
- Types of bookkeeping tools you’ll need
- Mobile options
- Collaboration options
You don’t need the most advanced accounting software while you’re still starting out. What you need is a software that’s affordable and has all you need to manage finances well.
Step 4: Launch Your Bookkeeping Business
After learning how to become a bookkeeper and equipping yourself with business know-how, it’s time to launch your bookkeeping business. Here are some steps you need to take:
- Acquire a tax identification number
- Apply for licenses and business permits as needed
- Select a structure for your business (sole proprietorship, LLC, etc.)
Aside from formalizing your business, you also need to market your services. There are several ways to do this:
- Networking — Attend networking events and small business groups to connect with potential colleagues and clients.
- Word of Mouth — Let your family and friends know about your business and utilize the relationships you already have. Ask people to recommend you, so you can gain clients and build your network.
- Create a Website — Having your own website adds to your credibility. It helps others find you and learn about the services you offer, and eventually, you can also include client testimonials on your website.
- Create a LinkedIn Profile — Social selling is an effective way to market your services, and you can start by connecting with people through LinkedIn. Make sure to update your profile with relevant and valuable content as you’d do with your website.
- Hand out Business Cards — Give people something to remember you by so when they need a bookkeeper, you’ll be at the top of their mind.
Almost all businesses need a bookkeeper. They may not always be actively looking for one, but at some point, they’ll need someone to manage their finances.
Look for potential clients on career websites that cater to remote bookkeeping jobs. Freelance marketplace websites also exist where you can find short- and long-term projects you can apply for.
One thing you can consider is focusing on a particular niche you can organically grow. For instance, you can be a bookkeeper specifically for doctors or startup companies.
Step 5: Negotiate a Reasonable Rate
According to the United States Bureau of Labor Statistics, the average bookkeeper salary per year is around $40,000 ($19 per hour). This is the rate that full-time bookkeepers earn.
As a service provider or a freelancer, you can earn more than the average full-time bookkeeper. The key to commanding a higher rate is to provide the value your clients need.
This is something that Bookkeeper Launch can teach you as part of the real-world problems you’ll learn to solve. The course equips you with the confidence to target a minimum of $60 for your hourly rate.
Step 6: Invest in Yourself
The first step on how to become a bookkeeper from home is to invest in work tools. Now we’ve come full circle — the last step you should continuously keep taking is investing in yourself.
This means actively improving your skills by undergoing training regularly. You also need to keep yourself updated on the latest industry standards to ensure you provide the best service to your clients.
Cultivate your desire to learn new things because there’s always something new to discover and learn. The accounting industry is always evolving, and you must roll with the changes if you want to stay in business.
Follow these six steps on how to become a bookkeeper, and you’ll be well on your way to launch a career as a virtual bookkeeper. With enough motivation and discipline, you can learn to be a bookkeeper even without previous experience.
Bookkeeping is super crucial for a small business to have a concrete foundation. No matter if you’ve been in business for weeks or years, bookkeeping is fundamental to grow your company and be organized. Having a good understanding of the fundamentals of bookkeeping will not only benefit your company but also help you lead a more prosperous life.