Good bookkeeping is essential for any business to succeed. It is needed to have financial health, more control, and a better understanding of how your business uses its money.

However, for a business owner not in the business of accounting, bookkeeping can be one of the most tedious, time consuming tasks they must do. This often leads to disorganized books, creating an inconsistent picture of your financial well-being.

Setting up an effective bookkeeping system for small business is vital to maintaining accurate records, ensuring tax compliance, managing cash flow, and achieve sustainable growth.

Read also: Bookkeeping Services for Small Business

There are a number of types of bookkeeping systems that may be the right fit for your business. It’s important to choose the bookkeeping filing system that will help you stay on track, stay organized, and keep your books up to date.

What Are Bookkeeping Systems?

Bookkeeping systems are a way to record a business’ financial information and transactions. It involves maintaining a general ledger, managing bank account and credit reconciliations, and staying on top of accounts payable and receivable. Bookkeeping can be done with a physical ledger or digitally, with most businesses opting to go digital for improved accuracy.

While it may seem simple to track business transactions, this can often become complex very quickly. Depending on the size and structure of your business, you can find yourself overwhelmed with the bookkeeping system process almost immediately. This is why choosing a bookkeeping system at your business’ inception is imperative for success. A simple bookkeeping system lays a solid foundation for a more complex one as your company grows.

There are four main types of bookkeeping systems used by Canadian small businesses:

• Single-Entry
• Double-Entry
• Automated
• Virtual

Each of these options come with their own set of benefits and challenges. Depending on your business operations and practices, any of these four could be the bookkeeping system solution you are looking for.

Why are Bookkeeping Systems for Small Business Important?

If you are not tracking your expenses and income meticulously, how can you know the true financial health of your business?

When starting out, many business owners neglect to start bookkeeping or dedicate only a couple hours per month to it. When this happens, you very quickly lose control and oversight of your finances and cash flow position. With the right bookkeeping system for small business, you can maintain total control over your company’s finances.

Proper bookkeeping is important gives a business a reliable measure of its performance both in the short term and the long term. It provides tangible data for making general strategic decisions and setting benchmarks for revenue and income goals.

Some of the reasons why a good bookkeeping system is important for small business:

• Improved financial management
• Better financial analysis
• Meet tax obligations
• Design a more accurate budget
• Set achievable targets and business goals
• Be well-prepared in case of an audit
• Make better business decisions and investments on a daily basis

Single-Entry Bookkeeping Systems

Single-entry are the most simple bookkeeping systems that a business can do. They are best for a small business that does not have many transactions and expenses or receipts and is considered informal compared to the other types of bookkeeping systems.

This system records cash disbursements, sales, purchases, and cash receipts. Anything else, like assets, equipment purchases, or investments, are simply recorded in the “notes” section of the program. Often, single-entry systems are an Excel-based bookkeeping system.

The simple single-entry bookkeeping system is so named because it only reports to one single account when any transaction is recorded. This is a good option for those who are very inexperienced with bookkeeping in a small business, but can begin to present problems as you grow and try to balance accounts or construct financial statements.

Double-Entry Bookkeeping Systems

A double-entry bookkeeping system a more advanced type of bookkeeping, used by most companies, bookkeepers, and accountants alike. In this type of bookkeeping system, there are fields for debits and credits so that when a transaction is recorded in one field, it is also recorded in the corresponding account. The double entry system uses the accounting equation “Assets = Liabilities + Capital.”

With the double-entry bookkeeping system, there are fields for almost all categories from basic to advanced - cash receipts, sales, expenses, the purchase of stocks, real estate investments, and more. If you are looking for how to create an Excel-based bookkeeping system, double-entry can be used as well, although this is more complicated to do on Excel than in a single-entry system.

In these systems, you also have the data and tools available to generate financial statements to help you file your corporate taxes, apply for loans, and attract investors. The process ensure accurate and complete recording of business transactions and is an extremely reliable source of financial information for the company and overall performance.

Computer Based Automated Bookkeeping Systems

As businesses change, so too does the bookkeeping and accounting industry. Over the last decades, countless computer-based bookkeeping systems have come on to the market to help business owners automate their bookkeeping.

QuickBooks Online, Sage, Xero, and Quicken bookkeeping systems are all some of Canada’s most popular automated bookkeeping systems and software. These programs all utilize the double-entry bookkeeping system processes, but the operator does not necessarily have to understand the technical aspects of this when using the programs. These systems are relatively user-friendly and use automation to record debits and credits from the relevant columns.

These machine-driven bookkeeping systems and software are designed for small businesses, SMEs, and large corporations. While user-friendly, these programs often have a learning curve and require technical training or experience to learn how to efficiently use them for a company. Usually, a company will hire an internal or outsourced bookkeeper to handle the automated bookkeeping system.

Virtual Bookkeeping

Virtual bookkeeping is quickly becoming one of the most popular bookkeeping systems in Canada. A virtual bookkeeper completely eliminates the need for you as a business owner to manage a single-entry, double-entry, or automated bookkeeping system. You do not even have to worry about hiring and managing an in-house bookkeeper on staff.

With a virtual bookkeeping system, a qualified and experienced bookkeeper works fully remotely to manage your bookkeeping. You provide your financial documents - receipts, bank statements, bills, invoices, and accounts receivable - and your virtual bookkeeper handles it all for you using advanced bookkeeping software.

The most notable advantage of a virtual bookkeeping system is the time savings, as you do not have to spend hours every week handling your own bookkeeping or software. Importantly, virtual bookkeepers come with cost savings and flexibility as well, making them ideal partners for a small business bookkeeping system.

Find a Bookkeeping Filing System That Works For You

Any of these four types of bookkeeping systems could work for your business, depending on its size, expenses, income, and transactions. While automated bookkeeping systems and virtual bookkeeping systems are the most popular for Canadian small businesses, manual single-entry and double-entry systems could work for you as well!

For more information about bookkeeping systems, contact the professionals at Accountor CPA. We are a leading provider of virtual bookkeeping systems using the double-entry methods to provide an excellent overall view of your company’s financial well-being at all times.

Contact us today for a free consultation and learn how virtual bookkeeping systems can simplify your daily operations!