Small business bookkeeping: 8 simple steps to follow

Bookkeeping is your financial compass, guiding you through calm waters and choppy seas. It’s not just about numbers; it’s about the story your business finances tell. You’ll be able to make smart decisions and weather any storm with this knowledge.

Running a small business is rewarding, but managing your finances can feel like a whole other job. Don’t worry, we’ve got you covered! This blog article will walk you through the essentials and bookkeeping tips for small businesses.

What is bookkeeping?

Bookkeeping is the process of recording and organising your business’s financial transactions. 

Imagine a detailed logbook for your business finances. Every sale, expense, invoice, and receipt – it’s all there, like a financial diary. This “diary” helps you see the bigger picture:

  • Where your money comes from (sales & income)
  • Where it goes (expenses & purchases)
  • How much profit you’re making

 

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The three benefits of bookkeeping for small businesses

Strategic decision-making

Clear financial insights let you see what’s working or needs a tweak. Are you making a profit? Where can you cut costs? Bookkeeping helps you answer these questions and make strategic decisions with confidence.

Compliance assurance

The Australian Tax Office (ATO) requires accurate records from business owners. Bookkeeping will help you follow the tax regulations and avoid nasty penalties. Think of it as keeping your paperwork ship-shape for smooth sailing.

Improved insights from analysts

Complete bookkeeping records are like a well-maintained engine. They attract the best financial advisors who can give you clear guidance. You’ll likely get better financial advice without resources to clean up mistakes.

Different ways to set up bookkeeping for small businesses


The best bookkeeping system depends on your individual needs and resources. Consider factors like your amount of transactions, budget, and the level of automation you want.

Here’s a breakdown of popular approaches for small businesses:

Manual bookkeeping

  • Good for: Super simple businesses with few transactions. Think of a solo baker selling at the markets.
  • Pros: Free, low-tech, good for basic tracking.
  • Cons: Time-consuming, prone to errors, difficult to analyse data, not scalable.

Manual bookkeeping means recording financial transactions in physical ledgers or journals. This traditional method requires careful attention to detail. Each transaction is recorded using pen and paper.

This works well for small owner operators  with simple transactions but can become disorganised. Retrieving and analysing the data can be time-consuming and challenging. These may make it difficult to gain valuable financial health insights.

Spreadsheet bookkeeping

  • Good for: Businesses comfortable with Excel or Google Sheets, with moderate transaction volume.
  • Pros: Flexible, customisable, cost-effective.
  • Cons: Requires spreadsheet know-how, prone to errors with complex formulas, limited reporting features.

You can use software like Microsoft Excel or Google Sheets to keep track of transactions. Spreadsheets offer flexibility and customisation, which offers more streamlined processes. They come with added benefits like templates and easier file sharing.

The data is entered electronically, and calculations are done automatically. Still, managing complex spreadsheets requires expertise and attention to detail. It is more likely that errors will occur in a robust spreadsheet.

While more efficient, spreadsheets may lack more advanced solutions for fast-growing businesses.

Accounting software

  • Good for: Businesses of all sizes looking for automation, ease of use, and detailed reports.
  • Pros: Easy to use, automates tasks, generates reports, and integrates with other tools.
  • Cons: Learning curve, might not be the cheapest for small businesses.

Accounting software simplifies bookkeeping by automating financial management tasks. These make tracking transactions and generating reports easy.

Accounting software packages can range in features and costs, depending on your needs. They have great potential for time savings and data accuracy. They typically have subscription fees for advanced features, such as cross-platform integration.

Outsourced bookkeeping

  • Good for: Businesses seeking experts, scaling their bookkeeping, or seeking cost-effective solutions.
  • Pros: Access to expertise, scalable support, frees up internal resources.
  • Cons: Finding a reputable provider, potential security concerns about sharing financial data.

You have the option of outsourcing bookkeeping functions to accounting professionals or firms. This option offers several advantages for businesses, including expertise, scalability, and cost-effectiveness. By outsourcing, you can access more skills and experience without hiring full-time staff. 

Here are common day-to-day tasks handled by outsourced services:

  • Data entry
  • Bank reconciliations
  • Payroll management
  • Financial reports
  • Quality control
  • Tax returns

Outsourcing can help small businesses afford dedicated accounting staff or software. Look for trustworthy providers to ensure your financial data and information is secure.

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How to do bookkeeping for small businesses


Running a successful business means staying organised with your finances. In no time, you’ll be an expert at bookkeeping, freeing up your time to focus on your business.

Step 1: Establish a bookkeeping system

First things first, choose a system that works for you. Consider any of the options explained above.

For bookkeeping software, look for an ATO-compliant tool for reporting. Some features to look out for include:

Step 2: Categorise your transactions

A chart of accounts lists all the categories you use to track your money. These include income, expenses, assets, and debts. You can add subcategories, like rent and utilities under expenses for more detail.

The chart should reflect the specifics of your business. Cafes might have categories such as coffee beans and pastries. In the same way, a plumber might keep track of tools and repairs.

Step 3: Choose between cash or accrual accounting methods

So, how do you want to track your money flow and performance? You have two main options:

Cash Accounting: Record income when you receive money and expenses when you pay them. This method is simple and popular. Businesses with an annual turnover of less than $10 million can use this method for GST reporting.

Accrual Accounting: Record income when earned (even if not paid) and expenses when incurred (even if not paid yet). This better represents your financial performance over a specific period, however it is more complicated.

Step 4: Record financial transactions

Keep all your financial documents handy. This includes invoices, receipts, bank statements, and purchase orders. These are your proof of what happened with your money. Review them regularly, noting who you dealt with, how much you paid, and when.

Every transaction affects two accounts. Imagine a seesaw: one side goes up (debited), the other goes down (credited) by the same amount. This is called double-entry accounting, and it keeps your books balanced.

Step 5: Manage accounts receivable and accounts payable

Keep track of money owed to your business (accounts receivable or AR) and money your business owes to others (accounts payable or AP). Keeping your cash flow healthy and financially sustainable is crucial.

To manage AR: Set up a process to issue invoices upon delivering goods or completing services. Scheduled follow-ups can help encourage customers and clients to pay on time. Other strategies include discounts for early payments and customer screening for customer creditworthiness.

To manage AP: Keep enough cash, especially to pay bills and avoid fees. Negotiate good payment terms with suppliers and take advantage of long payment terms. Leverage electronic systems to make paying bills faster and clearer.

Step 6: Conduct a bank reconciliation

Bank reconciliation makes sure your business’s financial records match what your bank says. Here’s how you do it: 

  1. Gather your bank statement and records.
  2. Compare each transaction to see if they match up.
  3.  Mark all the transactions for your business finances and record them.
  4. Adjust the records to reflect the correct balances (outstanding items, bank fees, etc.).
  5. Reconcile the ending balances to ensure they match the bank statement and records. 

Review everything and make sure your records match your bank’s statement. It helps keep your finances accurate and helps you catch mistakes early on.

Step 7: Create financial statements and reports

Your reconciled records are now ready to shine! Use them to generate reports like profit & loss statements and balance sheets. These paint a picture of your business’s health. You’ll also need to prepare reports according to ATO regulations.

Track aged receivables and payables to control cash flow. Use the data to manage relationships with customers and suppliers.

Step 8: Follow regular tax requirements 

The best way to prepare for tax season is to keep clean bookkeeping records! You can easily report income, expenses, and more following ATO standards. This includes payroll tax, GST, and Pay As You Go (PAYG) for employees and contractors.

If you can, bring a tax professional on board. They can update you on tax regulations and ensure smooth compliance. This convenience can save you time and money in the long run.

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Small business bookkeeping tips

If you’re looking to manage the bookkeeping on your own, consider the following business tips.

Choose the right software

Your business’s tax obligations and needs should be taken into account when selecting accounting software. Look for user-friendly options that streamline invoicing, expense tracking, and ATO-compliant reporting. For payroll, STP-enabled software can send the ATO payroll data every time a pay run is done, saving businesses valuable time and resources.

Separate business and personal finances

Open a separate bank account and credit card for your business transactions to avoid mixing personal and business finances. This simplifies bookkeeping and ensures clarity in financial reporting.

Operating out of your business account also makes you look more credible to customers and banks. With a good financial record, your business can become eligible for loans and bank rewards that could help secure your growth.

Stay on top of invoicing

In addition to prompt invoice issuing and following up, ensure that every invoice comes with all the info necessary to make a payment. Clearly outline the terms, due dates, accepted payment methods, and complete contact details.

Invoice apps and software let you use templates to send invoices in an instant. You can save time with customisations, due date tracking, and quick send receipts after getting paid.

Always be ahead of taxes

Set aside tax funds regularly to avoid cash flow issues when tax payments are due. Make sure you are familiar with tax deadlines and obligations, such as:

  1. Business Activity Statements (BAS)
    These reports show the government how much your business has made and spent. Generally, businesses submit their BAS either monthly or quarterly. The deadline for reporting and paying the GST amount is usually 21 days after the end of the reporting period
  2. Income Tax Returns
    The deadline for income tax returns is 31 October, following the end of the financial year. The deadline may be extended if the business uses a registered tax agent.
  3. Superannuation Guarantee Contributions
    These are for businesses who pay employees. Employers typically pay for super at the same time as they pay for staff salaries as part of STP reporting. In the case of adjustments, these should be paid by every 28th day after the end of each quarter.
  4. PAYG Withholding Payment Summaries
    Small businesses must provide PAYG withholding payment summaries to their employees by 14 July of each year. These summaries outline the total payments and amounts withheld during the financial year. 
  5. Annual GST Reconciliation
    These are for businesses registered with GST only. You’ll need to reconcile your annual GST amounts and report any adjustments on your BAS for the final quarter of the financial year. This reconciliation is typically due by the lodging date of your income tax return.

Bookkeeping for your small business made simple

Bookkeeping is essential to the success of any business. Getting valuable insights into your business health is more than just numbers. Identify the method that will help you make informed decisions and grow your small business.

Businesses are investing increasingly in digital services and solutions. Make sure your bookkeeping is done the right way, and your business will flourish in the long run.

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