set up a bookkeeping system

How to Set Up a Small Business Bookkeeping System

Setting up and maintaining a bookkeeping system for your business will not only keep your financial information in proper order, but it can be scalable when you grow your business. Bookkeeping allows you to set up projections and forecasts for the future, and lets you see where you may need improvements.


Bookkeeping involves keeping track of your day-to-day transactions, categorizing them, reconciling your bank statements and much more.

As we mentioned in our blog ‘The Difference Between Accrual and Cash Accounting’, your small business will likely be using accrual accounting to keep track of your money. As we stated in our other blog, this form of accounting is when your revenue is acknowledged at the time when it is earned, not paid, and your expenses are acknowledged when they occur, not when you pay them. This provides you with a more realistic view of how your business is doing, but it is also important to pay attention to your cash flow.


Setting up the System

One of the first things that you need to do (if you haven’t already) is to set up a business bank account. This is where all of your business transactions need to go through, whether it is an expense or a revenue. Having this separate account will not only let you know of every transaction related to your business, but you may also be able to import this information into your bookkeeping software.

It is important that you remember that your personal transactions cannot go through this bank account. Not only would this create the tedious task of having to sort all of your transactions on a regular basis, but it would be frowned upon if you were ever audited. This would also be a good time to set up a credit card for your business. Not only would this help to build up your business’s credit, you wouldn’t be using your personal card, and again, having to sort out your transactions.

The next thing set up right away is your bookkeeping software. Not only will this software save you time, it can improve your accuracy with keeping track of your money and business. There are a variety of programs on the market that offer varying levels of complexity and function. If you have employees, you may want to look at a program that integrates with payroll.

According to Investopedia, QuickBooks Online is considered to be the best program overall, not only because it is scalable, but because it is commonly used by professionals. There are other programs that a business owner may prefer, if they are a service-based or micro-business owner. By having a conversation with a bookkeeping specialist, they can help you choose a software program that is best suited to your business for features as well as cost.

As you are setting up the bookkeeping system for your business, you will need to make sure that you are accurately watching your business expenses. Part of this process is keeping all of your receipts, whether that be on paper, electronically, or even by photo. Some software programs have this feature built into their program already.

Some people like to toss all of their receipts into a pile and get to them later, but it is better to get in the habit of organizing all of your receipts, sooner than later. Since you will need to take all of these transactions and enter them into your software program, it is better to do this on a weekly basis, or more frequently if your business generates a lot of receipts.

When you are entering your transactions into your software program, you are not only entering the invoices or bills, but also any money that is coming in. This not only keeps your books up to date so that you can see how your business is doing but entering all of your transactions right away will help you categorize the receipts accurately.

This will be easier for you, so you aren’t guessing what purchase the invoice was for in 6 months or which project earned which revenue. Your receipts are going to be entered and coded according to your chart of accounts.


Using your System

Once everything is set up, you need to know where to start in your bookkeeping system. We’ve provided below a summary of some of our best tips for small business owners when they start using their system.

The software that you have installed may ask you to set up a chart of accounts. A chart of accounts is simply a list of all of the financial transactions that your company will do, broken into subcategories. Even though most software packages have a basic chart of accounts set up for your business type, you will likely want to add or delete some of these, depending on your business’s specific needs. For example, what you will have on your chart of accounts will be different if you are in construction, or manufacturing, or a service industry.

Now that you have your bank account set up as well as your software program, you need to reconcile these. Even though some programs can sync your bank statements with your software, this is still an important step. Reconciling, simply put, means that you are comparing your monthly bank statement with the cash account in your chart of accounts. This is done for a few reasons.

First, you need to make sure that there are no errors on yours, or your banks side. Second, you will need to adjust accordingly for any service fees or interest that is on your bank statement. Ideally, your cash account balance will match your bank statement. You may have to adjust for items that haven’t cleared your bank, but that is easily rectified. You just need to add or delete those on the bottom of your bank statement so that you can see the revised number. If the numbers don’t match, you will need to look for the problem.

There are a few reports that will help you to see how your business is doing, including the cash flow statement, income statement and the balance sheet.

Cashflow Statement

Your cash flow statement is going to show you exactly that. How much actual cash your business has received during a period of time. Since you are using accrual accounting, you may have revenue outstanding for work that you have already completed, or you may have not had to pay the invoice for materials yet. Your cash flow statement will help you to see if you actually have cash coming in to pay your bills. If you compare your cash flow statement to your income statement and they are significantly different, you are not getting paid fast enough and will likely want to change that.

Your income statement, or profit and loss (P & L) statement, shows you how profitable your business has been during a certain period of time. It will show you your revenues as well as your related expenses for that time period. From this statement, you can determine if you are earning enough profit for the work you have completed, or if you are spending more than your earnings, which is a loss.

Balance Sheet

A balance sheet will show your assets, liabilities and any equity, at a moment in time. This will help you to evaluate if your business is in good financial shape. Your assets will include any cash, equipment (office or otherwise), vehicles, buildings and so on.

Having these reports available to you not only helps you keep track of your financial records, but they allow you to see how your business is performing. As well, maintaining your books allows to you look back at previous years, so that you can see if there are consistent patterns and hopefully improvements.



Of course, no one likes to talk about taxes, but when you keep your bookkeeping up to date, this can help you at tax time. Not only will you not have to rush around, but you will already be aware of what you may owe.

You may prefer to outsource your bookkeeping, whether for time, accuracy, or because it is not something you want to do. It is important to understand how bookkeeping works though, and how, as a business owner you can track expenses and revenue.

However, setting aside the money for taxes when it’s earned is a great way to make tax time much easier. In your bookkeeping system, you will be able to delineate between earned income and upcoming expenses. Additionally, in your bank account that is linked to your system, you should have a dedicated tax account where this money will sit. These are a few things that can help you a lot around tax time.

These are some of the best ways to set up a bookkeeping system for your small business. When you’re starting out, it may always be smart to talk or consult with an accountant or bookkeeping firm, to make sure everything gets set up properly, and works as it should. Then, it’s up to you to keep the good habits up, because it will benefit you and your business down the road.


Need help from an expert?

We understand that bookkeeping may seem overwhelming to you. Let one of our experts at Valley Business Centre help. For over 30 years, Valley Business Centre has been providing comprehensive bookkeeping, payroll and tax services to our clients in Whistler, Squamish, the Sea to Sky Corridor, and Metro Vancouver B.C. areas. Valley Business Centre provides reliable and effective services to all clients.


This article is written for informational purposes only. It is current at the date of posting and changes to laws and regulations may result in the information becoming outdated. It is not intended to provide legal, tax, or financial advice. It is recommended that readers get advice from a tax professional before making any final decisions.

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