What is Bookkeeping? A Guide For SMEs

Bookkeeping is something every small business has to tackle. If you’re not a payroll professional, it can feel pretty daunting. The good news is, you don’t have to do it alone. We’re here to explain what bookkeeping is and how to tackle it successfully—freeing you up to focus on more exciting business functions, like engaging with customers and looking at growth opportunities Whether you decide to outsource the job or handle it yourself, it’s important for HR professionals and business owners to understand the basics. 

What is bookkeeping? 

In a nutshell, bookkeeping refers to the recording and classification of all financial transactions within your business. It involves documenting precisely what you spend and earn and regularly reporting on that activity to see how the business is doing. A bookkeeper is a person responsible for managing this process. Without up-to-date accounts, it can be difficult to see if your business is profitable and make it harder to be compliant with tax and other regulations. Keeping a close eye on your numbers can help to identify any financial challenges that may hinder your progress. Bookkeeping also provides an opportunity to see areas of your business that could expand and develop—opportunities that might not be obvious without clear financial reporting.

Bookkeeping vs Accounting: What’s the difference? 

If you’re already savvy with some basic accounting terms, you may be wondering how an accountant’s job differs from a bookkeeper’s. Some people may use the terms interchangeably, but while the two roles often go hand in hand, they each have their distinct functions. Bookkeeping involves recording and classifying financial transactions within a business, whereas accounting focuses on reviewing, analysing and interpreting the data that bookkeeping provides. Here’s the functions at a glance:

Bookkeeper	Accountant
Records financial transactions	Reviews financial statements and account balances
Generates monthly financial statements	Prepares financial statements
Processes payroll and payroll deductions	Financial analysis and planning
Creates invoices and collects payments	Files annual tax returns
Maintains General Ledger (GL)	Provides financial forecasts

 

Want the TL;DR of bookkeepers vs. accounts?

Bookkeepers have a transactional role that is mostly administrative, whereas an accountant’s role is considered to be more analytical and subjective, providing insights based on bookkeeping data.

How do bookkeepers and accountants work together? 

While bookkeeping and accounting are two separate roles, there is some crossover.  Bookkeepers generally manage the day-to-day finances of a business, while accountants provide a broader perspective on financial health and trajectory. This big-picture view is vital for understanding your business’s performance and financial health. In some businesses, an accountant and bookkeeper may share some responsibilities, such as payroll or tax reporting. In many small businesses, a business owner or HR professional might handle basic bookkeeping tasks—such as payroll and monthly reports—while hiring an accountant to perform  more complex reporting and taxation compliance tasks. 

Why do small businesses need bookkeeping? 

For any small business, bookkeeping is essential for long-term success. Having an accurate insight into your financial ins and outs, helps you make more informed decisions. 

Informed decision-making

Looking to buy that new product line or piece of equipment for your business? How do you know if you’ll be able to afford it or if it will boost profits? Bookkeeping gives you the financial data needed to make those decisions confidently.  

Business growth

As a business owner, you’re always looking ahead at growth opportunities. Having the right financial information allows you to turn those plans into reality.

Tax compliance

Taxes are a fact of life—and an unavoidable part of running a business. Accurately reporting your finances and paying the right amount of tax is vital. No one wants to be hit with an unexpected tax bill due to inaccurate bookkeeping.

Examples of bookkeeping for a small business

Financial records (aka ‘The Books’) 

• Cashbook
• Purchases
• Sales 

Monitoring and reporting

• Supplier invoices 
• Client/customer invoices 
• Bank statements 
• Monthly reports 
• Purchases 
• Payroll including payroll taxes
• Tax returns
• Reports for accountant analysis

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