These tips will help you in the process of capturing and managing your small business bookkeeping. These tips will also help you to increase your knowledge of bookkeeping, and will empower you to efficiently operate and manage your small business.
- Keep Business and Personal Banking Accounts Separate
Possibly the most important thing to do when you start your small business is to open a business banking account. NEVER put business revenue and expenses through your personal banking account! Trying to process personal expenses through your business bookkeeping structure and trying to separate your personal and business expenses in a single banking account is almost impossible, and never ever works.
It is important to be able to identify business income and expenses for what they are, especially if you are outsourcing your bookkeeping functions. This can only be done effectively if your personal and business banking accounts are separate.
If you do need to use business money for personal expenses, then get into the habit of transferring a lump sum amount from your business account to your personal banking account regularly, either weekly, bi-weekly, or monthly, depending on your needs. Mark these transfers clearly in the Reference block when doing the transfer – ideally mark it a ‘Drawings’. Your bookkeeper will immediately know what the transfer was for.
Most banks today offer a low-cost small business banking account for startups. In South Africa, I would recommend that you consider one of the following options:
Capitec
Capitec Bank offers a business banking account, with a very affordable fee structure. Capitec Business Account is available for Sole Proprietors and registered companies. All terms and conditions for opening a business account with Capitec apply, as per the Capitec website. At the time of writing this article, Capitec’s Business Account Fee structure is as follows:
- Free virtual card for online transactions
- Zero fees on local card payments
- Free access to digital channels
- R1 for payments to other Capitec accounts
- R2 for payments to other banks
- R3.50 per debit order
- R6.50 for immediate payments
- R10 per R1000 to draw cash at any bank’s ATM in South Africa
- R1.20 per R100 to deposit cash at any Capitec ATM
- R50 monthly service fee
*Information taken directly from the Capitec Website as at April, 2024
For more information, go to Capitec
First National Bank (FNB)
FNB offers a low-cost business transaction account specifically for Sole Proprietors. At the time of writing, the FNB website shows a zero-monthly fee offering. However, you will pay fees per transaction, so double check their fee structure before committing to opening an account.
If you have a registered company, FNB has a standard Business Current Account for you. Check their website for more details.
For more information, go to FNB
Tyme Bank
Tyme Bank is a new, digital bank operating in South Africa. They do not have branches at all, but you can complete the entire process of opening an account online. Some dealing with Tyme Bank (eg. Collecting your debit card) must be done at a Tyme Bank Kiosk. These kiosks are found at some Pick n Pay branches. Check out the Tyme Bank Website for availability of Kiosks in your area.
If you want to open a Tyme Bank Business Account (only available for Sole Proprietors), then you first need to open a personal account. You will then have the option to open a business account. Their business account also has very low fees, and is probably the best option available at the moment in South Africa for Sole Proprietors.
For more information, go to Tyme Bank
Savings Account
It is also a very good idea when you open a business account to open a business savings account. The Business savings account can be used for you to set aside money each month to cover any tax liabilities when they arise. This savings account can also be used to keep any VAT payable to the tax man if you are registered for VAT.
2. Recognise Business vs Personal Expenses
As you are running your new small business, you obviously will need to draw money to cover your personal expenses each month. You usually have two options to do this: Draw a set salary each month (this may require you to register with the taxman to pay employee’s tax, etc), or you can withdraw funds as ‘Drawings’ from your business account. Ask your bookkeeper or accountant for the best option for you.
Private vs Business Expenses
You need to be able to recognise what type of expenses can be claimed as a business expense, and what is a personal expense. This has implications for your nett profit, and can affect your tax burden at the end of each year.
You can safely put any expense that directly relates to the running of your business through the books as a business expense (eg. Rent of an office, stationery, inventory, etc). Any expense for you’re your own pleasure is NOT a business expense. This includes any personal groceries, family outings, etc.
There are certain expenses that can perhaps be partially claimed as a business expense, for example if you use your personal cell phone for your business, you can possibly claim at least a part of the monthly expense as a business expense in your books, but you will need to ask your accountant or bookkeeper about this.
Funds Introduced
There may be times when you use your personal funds for business purchases. These funds should always be brought into your business bookkeeping system through bookkeeping journals so that you can keep an accurate bookkeeping picture of all your business expenses. Don’t forget to let your bookkeeper know about these expenses. Remember also to always keep all slips and invoices for absolutely everything you do in your business, so that all income and expenses can be traced and tracked.
3. Choose the Right Bookkeeping Software
There are many accounting software option available to small business owners today. As a small startup business, you may find that simply keeping your income and expenses listed in an Excel spreadsheet is sufficient for you.
As your small business grows, you will need to consider more in-depth software. As your business grows, you will need to consider an accounting software package that offer at least the following:
- Cashbook
- Ledger
- Bank Reconciliations
- Accounts Receivable
- Accounts Payable
Depending on the type of business, you may also need to look at:
- Inventory Management
- Manufacturing
- Point of Sales (POS)
- Foreign Currency Transactions
To begin with, you may only need to use an invoicing package.
My Recommendations:
For full accounting packages, I would recommend QuickBooks Online or Xero Cloud Accounting. Both of these are amazing accounting offerings that you can adapt to suit your needs. Here is a comparison between QuickBooks Online and Xero Accounting.
If all you need to begin with is to issue invoices, the I would recommend Craft Invoicing, Invoice Ninja YOCO or Ikhokha.
YOCO or IKHOKHA are also good to consider if you want to accept card payments. Both of these have great card machine platforms that are affordable. Both YOCO and IKHOKHA also allow you to accept card payments online if you are expanding your e-commerce business.
Once again, speak to your bookkeeper or accountant for their recommendations before you commit to anything.
4. Keep Your Business Documentation Organised
It is vital to keep all of your business documentation organised and properly filed for easy access.
As a small business, you are required by the taxman to keep all business documentation (including slips and invoices, etc) for a minimum of 5 years. Check online for the legal requirements for keeping documentation in your area or country.
The only way to effectively stay on top of your documentation storage is to have a well-organised filing and archiving system. It goes without saying that a paper box or shoe box is NOT EVER considered effective or efficient. Spend a little money and purchase box files, plastic sleeves and whatever stationery you need to keep your filing system up to date. Remember, these purchases are all part of your business expenses!
In addition to a manual, paper-based filing system, in today’s environment you will also need to set up a similar digital filing system. I would recommend purchasing a separate, external hard drive for your computer or laptop for this. It is also a good idea to keep your electronic filing system backed up in the cloud. There are many cloud services available (eg. OneDrive, GoogleDrive, Box, etc). Remember to get into a habit of backing up your electronic filing system to your cloud storage at least once per week.
5. Keep Track of Cash Payments
All cash received into your business should either be deposited into the business bank account, or at least recorded into your Petty Cash system BEFORE spending it. While it may be tempting to take the cash and spend it straight away on supplies or something like that, it will cause havoc in your bookkeeping system.
It is common when receiving and then immediately spending cash to either forget that you were paid by the client, or to forget to capture the purchase you made with the cash. All this contributes to a sloppy, inaccurate bookkeeping system.
6. Learn to Understand Monthly Bookkeeping Reports
Monthly bookkeeping reports are vital indicators of how your business is performing. Take some time to understand how the reports are set out, and what the figures mean. Learn to interpret the reports as this will enable you to make more informed decisions in your business. The two most important reports are the Income Statement (also called the Profit and Loss Statement), and the Balance Sheet. The Statement of Cash Flows is also important for you to understand the actual position of your business regarding the availability if cash to run your business.
Speak to your bookkeeper or accountant about reading and interpreting your reports.
7. Always Keep Up To Date with your Sales Invoicing.
This may sound strange at first, but it is very common for some small business owners to neglect their invoicing. Many small businesses have failed and closed simply because the owner wasn’t able to follow or remember who had paid for services or not!
Make it a habit to invoice a client as soon as you have completed a job, or when you have the products ready for the client.
8. Outsource Your Bookkeeping if it becomes too Difficult for you.
You may find as your business grows that the bookkeeping function is just too hard for you to handle, or you just don’t have any time to keep up to date with it. Take the decision to outsource your bookkeeping functions, you won’t regret it.
Outsourcing these functions is cost effective, because you will only be paying for a few hours of work per month, instead of paying a full wage for an in-house bookkeeper. Outsourcing also can guarantee the accuracy of your books, as the bookkeeper is an accuracy profession! Keeping accurate track of your books is her job and passion. Remember, the bookkeeper is geared up with systems and knowledge that you may not have (and which may cost a lot of money to get).
You can choose to what extent you want to outsource. You may want to do invoicing yourself (this is usually a good idea, because you know better than anyone else about your products, services, etc). You may want your bookkeeper to do bank reconciliations, monthly reports, accounts receivable, payroll, etc.
Speak to your potential bookkeeper about this. They will also be able to advise you about which accounting software is best for you, how to set up and maintain your filing systems, etc.
9. Stay Involved in Regular Bookkeeping Checks
As the business owner, you are always ultimately responsible for the success of your business. This includes the accuracy of your bookkeeping systems and processes. Don’t just sit back and let someone else do everything. Even though your bookkeeper is a professional, she may not be doing everything correctly. This doesn’t often happen, but it has sometimes occurred that a bookkeeper is incompetent or commits fraud. You don’t want to get to the point where it is too late to rectify mistakes or save your business.
Reading and understanding your monthly reports and financial statements is a good beginning. You can also put certain security steps in place to ensure that everything is going well, such as:
- One person can be in charge of issuing and receiving cash through the petty cash system, and someone else can do the end-of-month reconciling of the cash box
- Person 1 can enter bills into the bookkeeping system, and Person 2 (the business owner) can approve and make payments
Speak to your bookkeeper about security steps that are relevant to your business in your bookkeeping system.
10. Pay your Employees on Time
Your small business depends on your employees (if you employ any) for its success. Honour your employees by always paying them on time. Remember, your employees rely on you for their timely wages in order to eat and to pay their bills.
Always make sure that you have made adequate provision for PAYE payments each month, and ALWAYS submit your payroll returns to the taxman on time. Late submissions and payments of payroll returns to the taxman always attract penalties and often extra interest, and extra, wasteful expense that is just not necessary for you.
If you are thinking of outsourcing your bookkeeping requirements, check out our Services page to see how we can help you, or contact us today. We will be happy to meet with you to discuss and help plan your future success.
* All information in this article correct at time of writing. Please check banking websites for latest data and information before you commit to anything.
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