Regardless of what business you’re in, whether you have 100 employees or you’re a one-person show, proper bookkeeping is a crucial component of running your business. It’s the function of recording and managing a business’s financial transactions that helps it keep track of its income, expenses, profits, and losses, and provides valuable insights into its financial performance. Accurate bookkeeping is particularly important in Canada as it is a legal requirement for businesses to maintain precise financial records.
What is Online Bookkeeping, and Why is it Important?
Traditionally, bookkeeping involved manual processes such as recording transactions in physical ledgers or spreadsheets. However, with the rise of more powerful mobile devices and smarter tools, businesses can now streamline their financial tasks and access online bookkeeping services for assistance that allows them to focus on revenue-generating business tasks.
Online bookkeeping refers to using cloud-based accounting software to manage financial transactions, accounts and reporting. It offers several benefits, including improved accuracy, efficiency and easy collaboration between bookkeepers and business owners, which can improve communication and reduce the likelihood of misunderstandings.
Thanks to online bookkeeping software, business owners and bookkeepers can access financial records from anywhere, at any time. This is particularly useful for business owners that are always on duty and businesses with multiple locations or remote employees.
These tools can also automate many bookkeeping tasks, such as data entry and bank reconciliation, which saves time and reduces the workload for business owners and bookkeepers.
Online bookkeeping tools also provide improved security. They typically include built-in measures such as data encryption and regular automated backups, which help protect financial records from data breaches and other security threats. Additionally, online bookkeeping software can provide audit trails that track changes to financial records, which can help prevent fraud and other financial irregularities.
Setting Up Your Online Bookkeeping
The first step on the journey to online bookkeeping is selecting a cloud-based accounting software that meets your business needs. Some popular options include QuickBooks, Xero, and FreshBooks. Once you’ve chosen your software, you’ll need to create your chart of accounts, which is a list of all the accounts you will use to track your financial transactions and organize your finances.
Next, you’ll need to set up bank feeds and credit card transactions to automate the recording of income and expenses. This involves linking your bank and credit card accounts to your accounting software, which will allow transactions to be automatically imported and categorized.
Customizing your dashboard and reports is another important step in setting up your online bookkeeping system. This will help you get a quick overview of your business’s financial health and other metrics that are essential to your business.
Entering Transactions in an Online Bookkeeping Program
When your accounts are set up, and you’ve customized your online bookkeeping program to generate essential financial reports, you’ll need to know how to enter transactions correctly for it to be effective and for you to stay on top of your finances.
Key transactions and information you’ll need to record in an online bookkeeping program to balance your books include:
Aside from using the information you input to make calculations, generate financial statements, reconcile accounts, facilitate tax returns, etc., online bookkeeping tools are also designed to automate tasks like invoicing customers, sending payment and bill reminders and expense categorization, among other routine and time-consuming tasks.
Managing Accounts Receivable and Accounts Payable through Online Bookkeeping
Managing your receivables and payables is also essential for balancing a business’s books and staying on top of its cash flow. In a nutshell, these are the general steps for using an online bookkeeping tool to complete these tasks.
Setting Up Customer and Vendor Records
The first step in managing your accounts receivable and accounts payable is to set up customer and vendor records in your online bookkeeping software. This involves entering basic information about your customers and vendors, such as their names, addresses, and contact information.
You can also use this feature to store vital data about each customer and vendor, such as their payment terms, credit limit and purchase history.
Creating and Managing Invoices and Bills
Once you have your customer and vendor records set up, you can start creating and managing your custom-made invoices and bills in your online bookkeeping software.
When creating an invoice or a bill, you will need to select the customer or vendor from your records and enter details about the goods or services provided, the price, and any applicable taxes. You can then send the invoice directly from the software and program it to automatically invoice clients when sales are entered or send payments (or set reminders) when bills are inputted. This can help you stay organized and ensure that you are billing and paying the right people on time, taking advantage of discounts and avoiding late fees.
These tools can also take this information from uploaded photos or scans of invoices, bills and receipts to save you even more time.
Tracking Payments and Outstanding Balances
Depending on how much automation you set up in your online bookkeeping software, you may need to manually enter payments in order to track outstanding balances that you are owed and that you need to pay.
Even if you have your system make and process payments and update balances, it is still vital that you review your accounts receivable and accounts payable reports to ensure that all payments are being recorded accurately and that outstanding balances are being paid on time.
Managing Your Cash Flow
Online bookkeeping software can help you stay on top of your finances by providing real-time accounts receivable and accounts payable reports, which empower you to identify and address cash flow issues.
For example, if you notice that you have a high level of outstanding invoices, you may need to take steps to encourage customers to pay on time, such as offering discounts for early payment or implementing a late payment penalty.
Similarly, if you have a high level of outstanding bills, you may need to adjust your spending or negotiate better payment terms with your vendors to improve your cash flow.
Take Advantage of One of the Best Features of Bookkeeping Software – Online Bookkeeping & Accounting Services
Even though online bookkeeping tools can help you generate financial statements, analyze your business performance and identify trends and opportunities for improvement, they also enable you to receive deeper insights and advice, tax preparation and compliance services and data entry and financial record maintenance from a professional business accountant remotely. These are all crucial elements to optimizing your revenue, reducing your expenses, making important business decisions, keeping you out of tax trouble and, most importantly, giving you more time and bandwidth to make more sales.