Bookkeeping is an integral part of any business, large or small-scale. Most people tend to shy away from the idea of bookkeeping, thinking that they will be unable to make the numbers add up or balance the books. The simple truth of the matter is that correct bookkeeping can spell the difference between success and failure. Many times, businesses are more of a numbers game - bookkeeping helps you keep track of the score from all the angles.
Financial statements are the key in any business. These are not only used for tax purposes, but they also keep you abreast of the financial health of your small business. For keeping accurate financial statements, many people hire someone to manage these financial statements - these are the people who have a passion for detail, the effective number crunchers who can and will do everything they can to balance the books. While this is a viable option for you and your small business, it is only half of the story. You need to bear in mind that you will have to understand your finances and your financial system intimately - after all, it is your business, isn't it?
At its simplest, barest form, bookkeeping is merely a series of entries of income versus expenses. To start, you must be able to develop a category system - you will need to designate certain categories or types for the expenses and the purchases that you will make. Simply go through the existing bills and assign categories. Utilities such as water will be easy to assign a number to, including other expenses, such as food items. When going to the supermarket, the meat that you buy will have a separate number from the vegetables, but both fall under the general category food. Dry goods that can be bought in the supermarket, such as glasses, plates and utensils, can be classified under a separate number to distinguish the dry goods from the foods. Both dry goods and the food purchases, however, still fall under the Supermarket or Grocery category.
Once you've set up the system, stick to it. You will need to have the discipline to stay true to your category system, because if you don't, you will end up with is a pile of useless numbers and data.
Next, you will have to spend a little time with your accountant in creating and managing a depreciation schedule. A depreciation schedule works on the assumption that there are goods, which you purchase, that will not be worth the original price value after a certain period of time. For example: if you buy a chainsaw that is worth 7,000 dollars originally, and will typically last for seven years, that means for every year the value of the chainsaw will dip by 1,000 dollars. Keeping records like these will definitely go a long way when it comes to tax time, and you will have to justify all the items you intend to declare as tax savings.