Understanding the Basics of Bookkeeping

Bookkeeping lay at the heart of every successful business. It involves tracking and recording all financial transactions, payments, and receipts that occur throughout the accounting cycle. Whether you’re just starting out or have been in business for years, maintaining accurate books is crucial for compliance, planning, and overall management.

While bookkeeping may seem like a mundane task, getting it right ensures your numbers are correct come tax time and helps you make important financial decisions. For many entrepreneurs, the actual process of bookkeeping can be tedious and time-consuming. This is where outsourcing to a bookkeeping service provides significant value.

In this in-depth blog post guide, we’ll explore the core components of bookkeeping and break down exactly what is included in professional bookkeeping services. By understanding the full scope of support bookkeepers provide, you can determine if outsourcing is the right move for your business needs. Let’s get started!

Recording Financial Transactions

At its heart, bookkeeping involves tracking and recording every financial transaction that takes place within a business. Some of the main transaction types bookkeepers handle include:

• Invoices: Entering customer invoices, recording payments received, tracking balances due.
• Bills: Recording bills, expenses, payments to vendors and suppliers.
• Payroll: Processing payroll checks, calculating deductions, managing payroll tax payments and filings.
• Banking: Reconciling bank and credit card statements each month. Resolving discrepancies.
• Inventory: Updating inventory levels as items are purchased and sold. Calculating costs of goods sold.
• Adjusting entries: Processing corrections or accrual adjustments as needed.

Professional bookkeepers have systems and processes for collecting, categorizing, and digitally archiving every financial document associated with your transactions. They’ll record entries in your bookkeeping software or accounting platform on a consistent schedule, typically weekly or monthly.

Preparing Financial Statements

Beyond transaction recording, bookkeepers also generate important financial statements you and your accountant rely on:

• Income statements: Track monthly or quarterly revenue, expenses, and net operating income.
• Balance sheets: Provide a snapshot of assets, liabilities, and equity on a given date.
• Cash flow statements: Monitor cash inflows/outflows from operations, investing, financing.
• Aging reports: Show customers with open balances and how long they’ve been outstanding.
• Budget vs. actual reports: Compare planned vs. real income/costs for variances.

By properly coding transactions, bookkeepers can pull any combination of revenue and expense accounts to build statements. They know which reports are most critical for your industry and size of operations.

Handling Payment Processing

Many bookkeeping firms now offer payment processing services as an add-on. This allows them to directly handle:

• Customer invoice payments via credit card, ACH, checks.
• Vendor bill payments through online banking or physical checks.
• Monthly reconciliation of payment transactions to bank/credit card statements.

Integrating payments streamlines the overall receivables and payables process. Bookkeepers ensure payments are promptly applied and records accurately reflect cash inflows and outflows.

Preparing for Tax Season

Come tax time each year, your bookkeeper will pull key data to support your accountant:

• Income and expenses by category for tax form preparation.
• Payroll records including W-2s and 1099s issued to contractors.
• Inventory costs and valuation information if applicable.
• Transaction details to support itemized deductions.

Proper bookkeeping practices and organization makes it simple for accountants to input data directly into your tax returns. Outsourcing also saves you time chasing documentation.

Bookkeeping services can also file sales tax, payroll tax, and other business tax returns directly on your behalf depending on the engagement.

Ongoing Bookkeeping Maintenance

Beyond transactions and financial statements, bookkeepers also handle routine maintenance:

• Reconciling bank and credit card statements each period to general ledger.
• Maintaining inventory, assets, depreciation, and balance sheet accounts.
• Filing/scanning receipts, invoices, bills and other documents.
• Generating reports for monthly book or board meetings as needed.
• Checking for unpaid bills and prompting payment as due dates near.
• Flagging transactions requiring follow up clarification or owner approval.

Regular bookkeeping keeps your financial records organized, complete, and up-to-date each period. This saves you administrative headaches down the road.

Tools and Software Support

Most bookkeeping firms utilize cloud-based accounting and bookkeeping software like QuickBooks, Xero, or Sage to keep client records digital. As part of services, firms manage:

• Software setup, configuration, and customized chart of accounts.
• Tracking all transactions securely within the online platform.
• Software maintenance like updating payroll rates and tax tables.
• Troubleshooting issues and answering client software questions.

By using specialized tools, bookkeepers work efficiently and access records remotely anytime as needed. Their expertise maximizes software functionality for your needs.

Consulting and Advisory Services

Bundled as an add-on or separate retainer, some bookkeepers provide valuable consulting and advisory support:

• Reviewing financials and flagging trends, variances needing explanation.
• Recommending process improvements to boost efficiency or compliance.
• Advising on cash flow challenges, budgets, financing options as needed.
• Explaining accounting concepts in clear, non-technical terms.
• Assisting with due diligence for funding/investment rounds as required.

Trusted bookkeepers understand your operations intimately. Their recommendations add value beyond transactional record keeping alone.

Assessing Value of Outsourcing

For many growing businesses, the benefits of outsourcing bookkeeping far outweigh doing it in-house:

• Free up executive/owner time for strategic tasks rather than administrative busywork.
• Gain expertise of a dedicated bookkeeper experienced across industries and situations.
• Ensure compliance with accounting standards and tax regulations is maintained.
• Access to tools, technology, processes optimized specifically for bookkeeping functions.
• Spread bookkeeping costs on a monthly basis rather than hiring full-time staff.
• Continuity of services even during vacations, leaves of absence or busy seasons.

The right bookkeeping partner becomes a trusted financial right-hand, taking ownership of your record keeping and reporting needs.

Evaluating Bookkeeping Service Options

When exploring bookkeeping services, consider factors like:

• Recurring monthly/quarterly retainer fees vs. hourly or project-based rates
• Minimum monthly charges or contract terms
• Core services included and add-ons available
• Tools and software provided or needing separate purchase
• Bookkeeping qualifications and industry experience
• Turnaround time for transactions, reconciliations, reports
• Communication policies and owner access to records
• Set up process, onboarding assistance, and training offered
• Data security, backup, and confidentiality policies

Researching leading options helps you identify the best fit considering your budget and needs. Look for firms focused on your industry too.

Making the Switch to Outsourced Bookkeeping

To transition record keeping responsibilities, your new bookkeeper will need complete financial data from inception. This onboarding process typically involves:

• Gathering transaction records from startup to present day
• Exporting or providing access to current accounting records
• Meeting to discuss your business, chart of accounts, processes
• Training on workflows, approvals, payment preferences
• Testing new record-keeping systems are accurately set up

Setting aside time upfront for a thorough handoff pays off with clean records going forward. Bookkeepers aim for a seamless transition experience.

Ongoing Review and Improvement

Even with professional bookkeeping support, it’s important for owners to routinely check in. Ask your bookkeeper:

• Review trial balances, financial statements each month
• Discuss any variances or issues needing explanation
• Validate transaction categories look appropriate
• Confirm processes still meet your evolving needs
• Provide feedback and approve any proposed changes

Periodic tune ups ensure top-quality record keeping and value from the partnership long term. Bookkeepers appreciate ongoing guidance too.

Conclusion

As your business grows, outsourcing bookkeeping frees you to focus on strategic objectives rather than tedious administrative tasks. Professional services handle all data entry, reporting, compliance needs, and more.

By understanding the full scope of support quality bookkeepers deliver, you gain insight into maximizing this invaluable partnership. Accurate, compliant books set the foundation for prosperity decisions required. Investing in professional services pays dividends for years ahead.

Now equipped with deep insight into all areas of expertise bookkeepers provide, you can evaluate if outsourcing is right for your stage of business. The time and cost savings alone may justify making the switch. Let us know if you need any bookkeeping recommendations.