{"id":13625,"date":"2019-10-26T14:12:54","date_gmt":"2019-10-26T13:12:54","guid":{"rendered":"https:\/\/experts.ng\/blog\/?p=13625"},"modified":"2020-04-25T21:18:30","modified_gmt":"2020-04-25T20:18:30","slug":"bookkeeping-small-businesses","status":"publish","type":"post","link":"https:\/\/www.experts.ng\/blog\/bookkeeping-small-businesses\/","title":{"rendered":"Bookkeeping 101 for Small Businesses in Nigeria"},"content":{"rendered":"\n<p class=\"has-drop-cap wp-block-paragraph\">Bookkeeping is the process of recording and coordinating a business\u2019s financial transactions. Therefore, bookkeepers record transactions, process payments, send invoices, manages accounts, and prepares financial statements. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Though Bookkeeping and accounting are similar, bookkeeping forms the basis of the accounting process.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Approximately\n40% of small business owners believe bookkeeping and tax preparations are the tasking\nparts of building a business, 47% say they are against the financial cost, and\n8% don\u2019t enjoy all the paperwork.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Why Bookkeeping is crucial to\nSmall Businesses in Nigeria<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Bookkeeping\nis critical to the sustainability and success of any small business. Because\nyou still need to have a perfect picture of all the financial inputs and outputs\nof your business. Understanding the state of your business\u2019s finances helps you\nto make accurate financial decisions and plan for the future.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Bookkeeping\nalso enables you to safeguard your business. For instance, your business is\ninvolved in a dispute with a vendor or under audit by the government. Without a\ncomprehensive financial record system, you may find yourself at risk of paying\nsettlements or tax penalties for unnecessary financial errors. It helps you to\nprevent or uncover fraud and discrepancies from vendors, customers or\nemployees.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Bookkeeping\nalso saves you time as it simplifies your business financial processes from payroll\ntaxes, managing invoices; it saves you the stress of tracking down all your\nexpenses amongst others. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">An\nefficient bookkeeping system makes information easy to find, because it places\neverything in perfect order, making your information search stress-free rather\nthan staying up for hours to find a particular document. This is one of the best\nfeatures of a great business bookkeeping system; it makes it easier to find\nuseful numbers automatically.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With\nbookkeeping, your vital information is secure. You don\u2019t have to worry about\nlosing information because you have a backup of everything.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Tips for Effective Management of\nBookkeeping Process<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">How\ndo you turn Bookkeeping into a new habit? Habits are loops with three parts \u2013\nCue, Routine and Reward<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Cue\n&#8211; Delegate an hour weekly to your business finances. Scheduling an hour per week\nin advance will help you in creating a weekly habit. Choose an hour in your\ndiary when you will be available and block that time off. Then set reminders to\nhelp you stay on track with the agenda and stick to it!<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Routine:\nMap out the activities you plan to undertake within the allotted time weekly.\nThe most effective way to work on it is to create a checklist. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Reward:\nAs a business owner, you will learn something new about your business by paying\nattention to your books. There is a wealth of knowledge to gain by spending\nregular time on your bookkeeping business. It will also make you more\nproactive, for example, when was the last time you reviewed your expenditure\nfor Q3? <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Basic\nsteps to small business bookkeeping <\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Create and manage accounts<\/li><li>Record every financial\ntransaction<\/li><li>Balance the books and prepare\nfinancial statements<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Create and manage accounts<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The\nstriking difference between personal budgeting and business bookkeeping is in\nthe managing of accounts. A bookkeeping account doesn\u2019t imply an individual\nbank account. It is an account that records all financial transactions of a\nparticular activity &#8211; production or sale.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Each\naccount falls under one of these five types:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Assets \u2013 These are a total of cash\nand resources owned by the business. <\/li><li>Liabilities \u2013 These are obligations\nand debts owed by the business. <\/li><li>Revenues or income \u2013 This is money\nearned by the business, often through sales of products or services.<\/li><li>Expenses or expenditures \u2013 This\nis cash that flows out from the business to pay for some item or service. <\/li><li>Equity \u2013 This is the residual value\nremaining after liabilities have been deducted from assets. It represents the\nowner\u2019s held interest in the business.<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>How to create Bookkeeping\nAccounts<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Traditionally,\nbusiness accounts were recorded in a physical book called the ledger. Today,\nthe practice has evolved with technological advancement. Most businesses use\ncomputer software to record accounts, but the file is still referred to as the\nledger. There are three methods for creating a ledger:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Spreadsheet software \u2013 Excel<\/li><li>Desktop accounting software &#8211;\nQuickBooks Desktop<\/li><li>Cloud-based software &#8211; Xero<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Meanwhile,\nthere are companies you can pay to manage your business accounts and ledgers.\nThese companies are known as outsourced accounting service providers or virtual\naccounting service providers because they manage your bookkeeping for you.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Some\ncompanies that offer bookkeeping services in Nigeria include AccountingHub,\nPML, Audeo, Pundit Bookkeeping services, Your Accountant, amongst others.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Record all financial transaction<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Document\nall your transactions to know what is happening with your money. Most\nbookkeeping is done using the double-entry accounting system, which is similar\nto Newton\u2019s Third Law of Motion, but for finances. Newton\u2019s law states, \u201cFor\nevery action, there is an equal and opposite reaction.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In\ndouble-entry accounting, any transaction in one account requires an equal and\nopposite entry in another account. The single-entry system is another option\nfor small business bookkeeping, but it is not usually recommended unless you\nrun a small business with little financial activity. Single-entry bookkeeping\nis simpler and faster compared to dual-entry, but it provides only a limited\npicture of your business\u2019s finances, thereby making it challenging to produce\nimportant financial documents, such as balance sheets.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In\nthe double-entry bookkeeping system, there are two entries for each transaction\n&#8211; Debit (Dr) and a Credit (Cr). <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Debits\nand credits are documented as journal entries in the ledger. The Debit is\nusually recorded first (on the left), followed by the Credit (on the right).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To\nrecord a transaction, first determine the accounts that will be debited and\ncredited. For example, you purchased a new point-of-sale system (POS) at N20,\n000, for your retail business. You paid N20, 000 for the POS system in cash.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The\ntransaction will affect two accounts: cash (Asset account) and equipment (Asset\naccount). Because you\u2019re decreasing your cash and increasing your equipment,\nyou would document a N20,000 debit (on the left) in the equipment account and a\nN20,000 credit for the cash account (on the right).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\nis important to note that journal entries don\u2019t include specific details about\nthe item, or vendor, you simply track debits and credits by account.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Balance the books and prepare\nFinancial Statements<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The\nfinal step in bookkeeping is to balance and close the books. When you tally up\naccount debits and credits, usually at the end of the quarter or year\u2014the total\nfigure should match. This is what it implies by your books are \u201cbalanced.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Creating\nfinancial reports is a vital task of the bookkeeping process, and it is key to\nevery business. Summing up the flows of money in each account creates a picture\nof the financial health of the company that business owners need to make\ndecisions about the future.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Below are some financial reports\ncreated in Bookkeeping:<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Balance sheet:<\/strong>\nThis document summarises your business\u2019s assets, liabilities, and equity at a\nsingle period. Your total assets should equal the sum of all liabilities and\nequity accounts. The balance sheet provides a look at the current health of\nyour business and whether it can expand or needs to reserve cash.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Profit and loss (P&amp;L)\nstatement<\/strong>: This report is also called the income statement.\nIt breaks down business revenues, costs, and expenses over a period of time\n(e.g., quarter). The P&amp;L helps you compare your sales and expenses and make\nforecasts.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Cash flow statement:<\/strong>\nThis statement is similar to the P&amp;L, but it doesn\u2019t include any non-cash\nitems such as depreciation. Cash flow statements show where your business is\nearning and spending money and its immediate viability and ability to pay its\nbills.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Bookkeeping\nsoftware helps you prepare these financial reports\u2014many in real-time. This can\nbe a lifeline for small-business owners who need to make quick financial\ndecisions based on the immediate health of their business. Read below for more\ndetails about getting help with your bookkeeping by using accounting software.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Schedule Bookkeeping and Secure your\nRecords<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Design\na schedule for your bookkeeping activities, at least weekly or twice a month for\nrecording all financial transactions, including invoices, sales, and purchases\namongst others. Also, ensure to close your books regularly, this can be carried\nout every month or quarterly. It is best to work on your books when your mind\nis still fresh &#8211; often, at the start of the day rather than when the day\u2019s work\nis over. With appropriate bookkeeping for small businesses, it\u2019s easier for you\nto be compliant with the law. It saves you time from chasing down past missing\ninvoices, and you don\u2019t want to have misappropriation issues. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Open a Business Account<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Opening\na business account cannot be overemphasised; it helps you to separate your\nbusiness money from your personal funds. Operating different bank accounts\nkeeps records accurate and make it easier for audit when its tax time. As a\nsmall business owner, if you can afford to hire an accountant to manage your\ntaxes, then consider it. If your personal funds is mixed with the business\u2019s\nmoney, it will be hard to report errors, if there are any.&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>File Documents Appropriately<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Filing\nis a crucial part of the bookkeeping process, from transactions to receipts,\ninvoices, and records. Record management is an integral part of running a\nsuccessful business. File your documents right away to ensure that everything\nis in order.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For\nexample, start a daily routine of recording bills, expenses, and other\nfinancial transactions. By doing this, you can track your expenses and profits\neffectively. Efficient record-keeping ensures that vital documents and records\nare up to date. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Do I\nneed extra bookkeeping help?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As\na small-business owner, you will probably do everything by yourself, especially\ncreating the product or service that your targeted market needs. Depending on\nthe overwhelming demands of the business, you may consider getting extra help\nwith your bookkeeping because bookkeeping mistakes can be costly and affect the\ngrowth and success of the business. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For\nexample, have you ever looked at your bank statements and wondered how much\nprofit your business generates for the month? Then, it\u2019s time to get help with\nbookkeeping.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As\na small-business owner, there are some cost-effective bookkeeping solutions to\nconsider, such as hiring an in-house accountant and also investing in accounting\nsoftware.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Outsourcing\nyour bookkeeping to a third-party company \u2013 managing both in-house and\noutsourced bookkeepers can be quite expensive. Outsourcing to a third party is\na cheaper alternative that small business owners can try. An example of a third-party\naccounting firm in Nigeria is AccountingHub. The firm is recognised as\nNigeria\u2019s small business accountant; it offers online and retail shop\naccounting services. It strives to connect small business owners with trusted\naccounting and tax professionals. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">&nbsp;If you need a cheaper solution, though,\nbookkeeping software takes care of the basics without foisting too much manual\nwork on you: they reconcile bank transactions, adjust account balances, and\ngenerate financial statements.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Review your Bookkeeping System\nregularly<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For\nnewbie business owners, you can start with a simple spreadsheet to manage your\nrecords. However, as the company evolves, it is crucial to consider advanced\nmethods and systems. As the business continues rising, it is important to\nreassess your current system. Evaluate the volume of time you spend on managing\nthe books. Also, review your bookkeeping system to know if it is cost-effective\nand how much it costs your business. When you do this assessment regularly, you\ncan decide to transit from one system to another. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With\nthe right bookkeeping solutions, you are investing more time and resources in\nthe business itself and not the bookkeeping process. In the long term, this\nwill enable you to save money, time, and effort. And you even have more time to\ndevelop new ways of boosting your sales and business.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Whether\nyou manage the bookkeeping process of your small-business yourself or get help\nfrom an expert, having a clear understanding of the basics will help you manage\nyour finances better. It will save you time chasing receipts, protect the\nbusiness from costly errors, and gain valuable insights into your company\u2019s\npotential.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Bookkeeping is the process of recording and coordinating a business\u2019s financial transactions. Therefore, bookkeepers record transactions, process payments, send invoices, manages accounts, and prepares financial statements. Though Bookkeeping and accounting are similar, bookkeeping forms the basis of the accounting process. Approximately 40% of small business owners believe bookkeeping and tax preparations are the tasking parts [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":13651,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","rop_custom_images_group":[],"rop_custom_messages_group":[],"rop_publish_now":"initial","rop_publish_now_accounts":{"twitter_3899566575_3899566575":""},"rop_publish_now_history":[],"rop_publish_now_status":"pending","sfsi_plus_gutenberg_text_before_share":"","sfsi_plus_gutenberg_show_text_before_share":"","sfsi_plus_gutenberg_icon_type":"","sfsi_plus_gutenberg_icon_alignemt":"","sfsi_plus_gutenburg_max_per_row":"","tdm_status":"","tdm_grid_status":"","footnotes":""},"categories":[298,41],"tags":[1354,1355],"class_list":["post-13625","post","type-post","status-publish","format-standard","has-post-thumbnail","category-financial-management","category-bus-dev","tag-bookkeeping","tag-financial-management"],"_links":{"self":[{"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/posts\/13625","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/comments?post=13625"}],"version-history":[{"count":0,"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/posts\/13625\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/media\/13651"}],"wp:attachment":[{"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/media?parent=13625"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/categories?post=13625"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.experts.ng\/blog\/wp-json\/wp\/v2\/tags?post=13625"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}