anaging your day-to-day finances is one of the most important tasks of any small business. Bookkeeping is the process of recording daily business transactions. Having a good system for bookkeeping will help keep your business finances organized year-round. Some businesses choose to hire a bookkeeper or utilize accounting software for their bookkeeping. If you’re already a small business owner or just starting your own business, you can save money by using Excel to create a bookkeeping system. Chances are you already have access to the computer program. Here’s a look at how to do small business bookkeeping in Excel like a professional.
Why Use Excel for Your Small Business Bookkeeping
Microsoft Excel has been around for decades but is still used by businesses today because of its accessibility. Excel is useful for several applications, including bookkeeping. Businesses around the world use the spreadsheet-based program. Training on using Excel is also readily available online to get you and your employees up to speed if required. Another reason to use Excel, as mentioned earlier, is that you probably already have it installed on your computer. If not, it’s available to download for a small fee. Using Excel is likely cheaper than hiring a bookkeeper or investing in popular accounting software programs. Excel has several helpful features and functions that can help you create a small business bookkeeping system that works. You can enter and categorize transactions through Excel, create various bookkeeping templates, track invoices, and much more.
How to Create A Small Business Bookkeeping System in Excel
To create a bookkeeping system for your business, you can start with blank Excel spreadsheets or find Excel spreadsheet templates online that fit your needs. Depending on your experience level, using templates may be an easier way to start. Use the following steps to set up your bookkeeping system in Excel.
1. Keep your business and personal finances separate
Before you take a deep-dive into your business finances, an essential first step is to ensure you’re making your bookkeeping process as simple as possible. The easiest way to do so is to keep your business and personal finances separate with a business checking account. If you keep all of your finances in the same account and commingle business and personal funds, you risk making your finances very confusing. It can be hard to differentiate which transactions are personal and which are for your business, which can make bookkeeping difficult and create undue stress and confusion during tax time.
With a separate business account, you can easily track your business cash flow. This will help you claim tax deductions, protect your assets from liability, and gain access to certain funds that are business-only. Having a business checking account will also legitimize your business with your customers.
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2. Decide what accounting method you want to use
There are two primary accounting methods that businesses use — cash accounting and accrual accounting. The difference lies in when you record company revenue and expenses. With cash accounting, you record revenue and expenses when money is received or paid. Accrual accounting records revenues and expenses when they are earned or incurred.
A third, more recent accounting method is Profit First. In a nutshell, the Profit First accounting method revolutionizes the concept of modern accounting, essentially proposing to reverse the order in which funds are allocated. The general idea behind Profit First accounting is that businesses should pay themselves first and let what remains to dictate how much they can spend on operating expenses.
- Traditional accounting: Sales – Expenses = Profit
- Profit First accounting: Sales – Profit = Expenses
3. Create a chart of accounts
The very first spreadsheet you need to create is called a chart of accounts. This is a list of all of the accounts set up in your bookkeeping system. Having a chart of accounts allows you to track all financial activities. Consider each account listed on this sheet like a category, and as you record transactions, they get sorted into one of these categories. A template likely comes with some accounts listed already, but you will probably need to tweak it a bit to fit your specific company needs. You’ll want to list the account type (income, expense, cost of goods sold) and a number with each account. You can also include a short description that may help you later as you start to record transactions.
4. Create an income and expense sheet
Next up, you need to create an income and expense sheet. These can either be separate sheets (or tabs on the same spreadsheet) or kept together. Keeping accurate records is the key to a good bookkeeping system, and this sheet is imperative for reaching that goal. As transaction receipts come in, record them on this sheet. Receipts typically come in paper or electronic form. It’s a good idea to create filing systems for both. For paper receipts, either keep them filed, either by date or alphabetically, or snap a photo of them and store them electronically with your other e-receipts. Find a system that works best for you and stick with it.
5. Create optional bookkeeping reports
Depending on your type of business, you may want to take your bookkeeping a step further by creating some extra Excel spreadsheets to help you assess your company’s financial health. Dozens of business reports exist, but here are three reports you should consider adding to your Excel bookkeeping system first.
- Income statement sheet: Also known as a profit and loss (P&L) statement, this report shows company profitability over a period of time. The report is broken down into different aspects of your business and allows you to see which ones are the most or least profitable.
- Balance sheet: Consider a balance sheet as an overview of business assets, liabilities, and equity over a period of time.
- Cash flow statement sheet: A cash flow statement lets you know how much cash you received over a period of time. While your income statement relies on accrual accounting, this statement reports actual cash flow from paid invoices and expenses.
How Novo Can Help
One of the most important aspects of bookkeeping is the day-to-day recording, tracking, and reconciling of all of your business transactions. With Novo, you can add details to every transaction, including adding categories and notes, and uploading images and documents. You can also export all of this data in a CSV file for easier bookkeeping in Excel.
Excel may or may not be the best program for generating these types of reports, so play around and see if it allows you to do what you need. Having a solid bookkeeping system in place and using it daily will help you manage your business more efficiently, give you a better sense of your company’s future, and save time.
Kevin Payne is a personal finance and travel writer. His work has appeared on websites like Forbes Advisor, Investopedia, Credit Karma, and FinanceBuzz. He is the family travel and budget expert behind FamilyMoneyAdventure.com. Kevin lives in Cleveland, Ohio, with his wife and four kids.