Small business bookkeeping

It depends on the business. Keeping your own books can work well while the business is small and simple. The real questions are whether the books are current, whether they're right, and how much of your time they take.

Signs the books may need more help than you have time for:

• The bank reconciliation keeps slipping, and the books are more than a month or two behind.
• You sell on credit and lose track of who owes you what.
• There are more accounts to keep up with, such as a second bank account, business cards or a loan.
• Your accountant's year-end work starts with a long list of questions about transactions you no longer remember.
• You want monthly figures to make decisions with, and the books can't give them yet.
• Time on the books is coming out of paid work or your evenings.

Signs you may be fine on your own for now: a small number of transactions each month, one bank account, few or no customers paying on credit, and a reconciliation you finish each month without trouble.

Our comparison, In-house vs outsourced bookkeeping, sets out what changes when your bookkeeper is an employee rather than an outside contractor. Which arrangement suits your business is your call, and your accountant can help you weigh it up.

A bookkeeper keeps the month's records complete and checked, so the reports at the end of the month reflect what actually happened. The diagram above shows who does each step. This is what each kind of work gives you:

The order matters. Reports come after the reconciliations, because an unreconciled month can hold duplicates or leave transactions out, and the profit figure would carry those errors.

How much a month holds depends on the business: the number of accounts, the number of transactions, and how many bills and invoices pass through. A business with one account and a few dozen transactions has a light month. One that buys from many suppliers and sells on credit has a heavier one.

A bookkeeper keeps the day-to-day records, and your accountant works from them. Our guide, What does a bookkeeper do?, sets out how business.gov.au describes each role.

Unusual items, such as a large equipment purchase or money you've put into the business, are recorded the way your accountant advises. With the books reconciled each month, your accountant starts from checked records and a list of anything still open.

If your accountant wants something kept in a particular way, such as sales from each location shown separately, telling us early means the books are kept that way from the start. Our comparison, Bookkeeper vs accountant, sets out the ABS figures for each role's tasks and skill level.

The bookkeeping is the same work. What changes is how close the business sits to your own money and, for tradies, how much of it runs job by job.

For a sole trader, the main issue is mixing. When one bank account or card carries both business and personal spending, each personal item has to be picked out and kept away from the business figures. That's slow work, and each item is a chance for a mistake. A separate account for the business leaves far fewer transactions to sort. Money you take for yourself is recorded in the account that fits your business structure, as agreed with your accountant.

For tradies, the books follow the jobs:

• Each job has a reference that appears on its quote, supplier dockets and invoice, so costs and payments can be traced back to it.
• Materials picked up at the counter are recorded against the job they were for, with the docket attached.
• Deposits and progress payments are tracked against the job and the invoice they relate to. How a deposit is treated before the work is done is a question for your accountant.

Our guides, Bookkeeping for sole traders and Bookkeeping for tradies, go into each of these in more detail.

Getting started is mostly about access and a starting point. The steps are:

1. Access. You invite us into your accounting software as a user. If you aren't using software yet, our help is limited to getting access to it, connecting supported bank feeds and training.
2. A starting date. We agree the month the routine begins from.
3. Opening balances. The balances at the starting date build on the closing figures your accountant finalised for the most recent year. Where the months since then are reconciled, the books carry those balances forward.
4. The scope. We agree which accounts we reconcile, whether we enter bills and track invoices, and what goes in the monthly reports.

Questions tend to bunch up at the start. Each regular supplier, customer and transfer is new to us, and once one has been explained, later transactions from it follow the same pattern. Full answers to those first questions mean fewer of them in the months that follow.

Before the first month starts, it's worth asking your accountant what they'd like the books to show, such as a particular cost kept in its own account. Your accountant decides how the accounts are set up, so agreeing that first saves changing the books later.

business.gov.au says most business records need to be kept for 5 years. The period starts from when you got the record or completed the transaction it relates to, whichever is later. Some records need keeping for longer: company records, for example, for 7 years.

Among the records it lists are records of income and sales, business expenses including cash purchases, expenses related to your assets or stock, and bank records.

On how to keep them, business.gov.au says records may be on paper or digital. They need to be in English, or easily translated into it, and stored so they can't be altered or damaged. It also says a saved image of a paper record can replace the paper, as long as the copy is a true and clear reproduction and follows the record-keeping rules.

Monthly bookkeeping helps with the keeping. Bills and receipts attached in your accounting software sit with the transactions they support, in your own file, so they stay with the books if the business changes bookkeeper. Whether a stored copy meets the rules for a particular record is a question for your accountant.

Our guide, How long to keep business records, has more on what to keep and when the period starts.