How Do Self-Employed do Bookkeeping Themselves?
In the Article (Quick Access)
If you are a self-employed professional who does not have 100s of accounting entries every month, you do not need to hire a professional bookkeeper or an accountant.
Also, If you are a small business owner in Australia, you might not need a professional bookkeeping service as your turnover is less than the GST threshold limit (note: The threshold for GST in Australia is 75,000 AUD (refer: ATO’S Registering for business page)
Instead, you can do your own bookkeeping by following some simple steps.
I did my own bookkeeping as a self-employed professional using spreadsheets and trust me – it is not rocket science.
Wait-2, before we start the blog – let me ask you a question?
Have you got your ABN number before starting your self-employed business?
If you haven’t, please go and get one because you cannot start a business or be self-employed until and unless you have an ABN (Australian Business Number).
FYI – Getting an ABN is quite simple. All you got to do is, go to ATO’s website and find the page to register for one.
It is a simple straightforward process.
Let’s move forward with the article.
Now If you decide to go down the route of managing your own bookkeeping, here are the steps you should take:
What should you do to do your own Bookkeeping?
1. Learn Basic Accounting Terms
Don’t sweat over fancy words like accounting terms’.
I absolutely do not want to scare you.
On the contrary, as someone who is a self-employed professional or a small business under 75K AUD turnover, I encourage you to be a little financial literate and learn the meaning of terms like:
- Financial statements
- Income statement
- Double-entry vs single-entry bookkeeping
- Business entity
to keep your bookkeeping properly managed.
I can tell you from experience, that all of the above are simple day-to-day financial stuff organized under accounting names.
Please learn them before you decide to do your own bookkeeping.
2. Keep Track of all Small Business Transactions
The first and foremost thing to do is keep an accurate record of every transaction your small business makes.
This includes all payments and purchases.
You can use traditional spreadsheets like Excel or ledger books to achieve this.
The challenge you might face is that there may be some errors or duplications involved, which can also be very time-consuming.
But, I am sure you have that worked out as you have decided to do your bookkeeping.
However, if you want things to be faster and easier, you can go for cloud accounting software that you can use anywhere, anytime.
Some inexpensive ones can automate your bookkeeping. For example, MYOB and Xero both have affordable subscription plans to help you get started on your own.
Your bookkeeping will also include all the purchases with the specific product or service name.
Every time you pay your staff, a supplier, or buy something for the business, record it. Make sure you have receipts for backup where applicable.
You must have accurate financial bookkeeping or record for at least six years as a sole trader.
This is more applicable if your company is a limited company.
3. Regularly Monitor the Cash Flow
When we talk about cash flow, it refers to the income and expenditure from your company account. (Source: Sage)
You will manage how cash flows in and out of your business with bookkeeping. You can then use it to make real-time insights and plans to grow your business.
4. Keep your Business up to date with Late Payments
Late payments can stall the progress of your business. If you do not stay on top of late payments, your business may struggle and may not survive after a while. Some of the causes of late payments include:
- Customers do not pay for a product until they confirm the quality
- Customers insist on discounts after trying out a product
- Change of suppliers’ terms and conditions
- Credit purchases from customers
You must ensure that your business keeps track of such late or withheld payments as they can slowly cripple your business.
5. Use Excel or Buy an Accounting Software
Well! Gone are the days when you could use pen and paper (in our case ledger register) to do bookkeeping.
If you are someone who plans to do your own bookkeeping, my suggestion is to get a grip on either excel or buy a one-user license of Australian small business accounting software like Myob or Xero to help you with bookkeeping-related activities.
Tips for Self-Employed to do their own Bookkeeping
- Maintain a separate bank account to ensure all your business day-to-day transactions are separate from personal transactions
- Keep an eye on your turnover, as soon as it is about to touch 75K AUD get ready to get a GST number
- Always close the month by summarising the income, expense, and overall P & L in a month
- Keep track of your due invoices and quotes along with payments received against invoices and orders won against quotes
- Don’t miss loan repayments and Credit card bills
And that should pretty much cover everything for you to do your own bookkeeping as a self-employed professional or a small business owner.