A Complete Virtual Bookkeeping Guide For Your Business

Whether you are running a small startup or managing a large enterprise, keeping accurate financial records is vital for informed decision-making, tax compliance, and long-term success. 

Who is a virtual bookkeeper, and why should you hire one?

A virtual bookkeeper is one who is capable of handling your books from anywhere. You can easily communicate your financial data with your virtual bookkeeper via the software you two are using, and he will organize them in the best of your interest.

One should hire a virtual bookkeeper because:

• They help the business save on annual operating costs.
• They are more flexible with work timing.
• They help in keeping track of your financial data, along with up-to-date payment and invoicing.
• They help maintain an accurate financial book for the business.

Another benefit of virtual bookkeeping is that it is quicker for virtual bookkeepers to administer digital transactions like debit cards, credit cards, PayPal, etc.

Types of businesses that are mostly likely to opt for virtual bookkeepers:

• E-commerce stores 
• Application developers.
• Software designers and engineers (freelancers)
• Writers and illustrators (freelancers)
• Health professionals who prefer online bookings and payments.

Why is Bookkeeping important for your small business?

• Tracking Profitability

Measuring a company’s profitability allows it to monitor changes in its revenues and the possibilities of increasing it in the next periods. Some helpful profitability ratios that let you gauge your company’s efficiency include:

1. Gross margin ratio
2. Profit margin
3. Return on assets ratio
4. Return on equity
5. Return on capital employed

• Maintaining Cash Flow & Improved Financial Management

As a responsible small business owner or bookkeeper, you should be aware of your company’s revenue streams. Proper financial records make it easier for you to analyze the financial state of your firm and determine areas that need improvement.

• Preparing for taxation

If you run a start-up, recording transactions as they happen can save you time and prevent last-minute scrambles for financial information. Good bookkeeping helps you identify tax types and calculate amounts due in advance.

• Easier Reporting

Bookkeeping programs with visual aids like graphs and charts improve data accuracy and communication with investors. Effective bookkeeping provides the necessary information to engage your team and foster a sense of inclusion.

• Evaluate Performance & Plan for the Future

Accurate bookkeeping is crucial for tracking your company’s financial records and assessing performance. It allows you to identify trends, compare past results, and understand where to cut costs. This insight can help you adjust your strategies and keep your business on track.

Steps on how to handle bookkeeping for your small business

Step 1: Collect your financial documents.

First, you need to collect all the required financial documents, such as invoices and receipts, and track all sales and purchase transactions, along with payroll records and tax returns.

Step 2: Categorize your business transactions

Business transactions need to be sorted into specific categories — assets, liabilities, revenue, equity, or expenses.

• Assets: Items owned by your company, both physical and non-physical.
• Liabilities: Money owed by your business to others.
• Revenue: Income from selling goods or services.
• Expenses: Costs incurred for business operations, like supplies and utilities.
• Equity: Owner’s contributions in cash or investments, such as equipment and property.
• Transfers: When money is moved from one of your business accounts to another or a business credit card.

Step 3: Reconcile your business transactions

It’s time to reconcile your business transactions by comparing your records or bookkeeping software with your bank statements. This ensures all information matches and every transaction is accounted for.

Start by checking that the beginning balance is the same in both your records and bank statements. Then, each transaction should be reviewed individually to ensure that there are no discrepancies.

Step 4: Prepare your business’s financial statements

Now that your accounts are balanced, you can prepare key financial documents that provide insights into your business’s performance:

• Balance Sheet: This document shows your assets, liabilities, and equity for a specific period, displaying your business’s financial health.

• Income Statement: This document details your revenue and expenses for the period and is also known as a profit and loss statement.

• Cash Flow Statement: This statement outlines how cash moves in and out of your business over a period. It includes three sections:

1. Cash from Operations: Cash from daily business activities.
2. Cash from Financing: Cash from loans or investments.
3. Cash from Investments: Cash earned or lost from long-term asset investments.

Step 5: Review your financial statements

Analyzing your financial documents will provide insights into your business’s health, helping you make informed decisions.

• Balance Sheet: The assets section shows the overall value of your business, while the liabilities section outlines what you owe.
• Income Statement: Your income statement details your earnings and spending, revealing your bottom line.
• Cash Flow Statement: This statement tracks the movement of cash in and out of your business. 

Who should manage small-business bookkeeping tasks?

The bookkeeping tasks for small businesses can be managed in three different ways, which include:

• Use an online bookkeeping service.

You can choose an online bookkeeping service that allows you to communicate entirely via email or phone, eliminating the need for in-person meetings. The specific responsibilities managed by each service may vary, so it’s important to discuss the scope of work and compare options to find the best fit for your needs.

• Do your small-business bookkeeping.

Accounting software can significantly reduce manual data entry, making bookkeeping much more manageable. However, if you fall behind on reconciling transactions or tracking unpaid invoices, it can become challenging to catch up.

• Hire an in-house bookkeeper.

You can hire a bookkeeper to work directly for your business. If you choose this option, prepare interview questions that will help you determine the best candidate.

How To Pick The Suitable Virtual Bookkeeper?

Be it a freelancer or services, the method to pick the most suitable one for your business is the same. Prepare a list of your bookkeeping requirements and choose accordingly. You can also refer to the questionnaire mentioned below and choose consequently: 

• How many transactions are there each month?
• Do you prefer accrual or cash basis accounting?
• Do you have an accountant hired for tax filing?
• Do you know about certain accounting software?
• What is your availability demand?
• What is your monthly budget?

Virtual Bookkeeping vs In-House Bookkeeping

Expert small business bookkeeping tips

To enhance your bookkeeping practices, consider the following expert tips specifically designed for small businesses:

• Stay Informed: Stay current with changes in tax laws and financial regulations that could impact your business’s bookkeeping.
• Prioritize Accuracy: Always double-check your entries for errors. Accurate bookkeeping is crucial for obtaining reliable financial insights and making informed decisions.

• Stay Organized: Keep your financial documents well-organized. This practice simplifies bookkeeping and saves time during audits or tax season.

• Embrace Technology: Utilize technology to automate and streamline your bookkeeping processes.

• Plan for Major Expenses: Anticipate and prepare for significant expenses, such as equipment purchases or costs related to expansion, to prevent financial strain.

Small Business Bookkeeping Mistakes to Avoid 

• Tracking Expenses Incorrectly –  Accurate tracking of reimbursable expenses and saving smaller receipts is essential.

• Mixing Personal and Business Finances – Mixing personal and business finances can lead to inaccurate financial records, making it difficult to manage cash flow and track business performance. It can also complicate tax filing.

• Misclassifying Expenses – Incorrectly categorizing expenses and transactions can result in inaccurate financial records.

• Throwing Away Receipts – It’s important to keep receipts, especially for small purchases, so you can categorize expenses and claim tax deductions.

• Not Classifying Employees Correctly – Correctly classifying employees is crucial, as misclassification can lead to lawsuits and tax penalties.

• Neglecting Bank Reconciliation – Failing to reconcile bank statements regularly can lead to missed transactions, overdrafts, and errors in financial reporting.

• Insufficient Record Keeping – It’s easy to lose receipts or overlook small expenses. Maintaining accurate records on a monthly basis can save you both time and money.

• Cash Flow Problems – Cash flow issues can arise from excessive receivables, loans, inaccurate sales forecasts, and overlooking financial statements.

Conclusion

If you are unable to handle your business data alone, consider hiring a virtual bookkeeper who can easily organize and administer your daily financial data in the best possible way. 

FAQ 

What is the best bookkeeping method for a small business?

The best booking method for a small business is Single-entry bookkeeping. This method is for smaller businesses with limited financial activity. This method records each transaction, making it easy to maintain but limited in providing comprehensive insights into business finances.

What is the basic rule of bookkeeping?

The basic rules of bookkeeping are:

• debit all the expenses and losses
• credit all incomes and gains
• debit what comes in and credit what goes out

What are the 5 stages of bookkeeping?

The 5 stages of bookkeeping are:

• Identify the transaction
• Analyze the transaction
• Journal entries
• Posting to the ledger
• Close the books