Managing finances and keeping track of expenses may not be the most exciting aspect of running a small business, but it's paramount for success. As a small business owner, you wear many hats and are responsible for various tasks, including bookkeeping. But, with the help of Microsoft Excel, creating a streamlined and effective bookkeeping system for your small business can be easier than you think.

With that said, let's explore how small businesses can utilize Excel to organize their financial data, stay on top of accounting tasks, and ultimately make informed decisions that drive growth. Discover the possibilities of using Excel as your bookkeeping tool here!

Using Excel to Aid Your Small Business in Bookkeeping

Microsoft Excel has been around for decades, and businesses continue to use it today due to its vast features and versatility. It could do not only simple arithmetic but complex accounting tasks, too. It's why small businesses with limited budgets choose Excel for their bookkeeping system. So, instead of purchasing accounting software, they could use it for more critical business tasks, such as buying window stickers for marketing and promotion.

To create your bookkeeping system, start with a blank Excel spreadsheet and create one from scratch, or use a pre-designed Excel template from Someka. After that, follow the steps below:

Keep Personal and Business Expenses Separate

Before building a bookkeeping system, it’s essential to isolate your business and personal financial transactions first. It starts with opening a business bank account where all funds used for your business will go. You may have already done this, but it's worth mentioning for those not well-versed in business finances.

Some reasons to open a business bank account:

  • Easily track your business expenses.
  • Avoid any confusion when tax season comes around.
  • Legitimize your business with your customers.

Once you use your bookkeeping system, it'll be easier to track your cash flow. Therefore, you can effortlessly claim tax deductions, protect your assets from liability, and gain access to funds that your business needs.

Determine Which Accounting Method You Want to Use

Most businesses use one of the two primary accounting methods - cash accounting and accrual accounting. The difference lies in the way you record company revenue and expenses. With cash accounting, you document money and expenses only when money is paid or received. Meanwhile, accrual accounting records revenues and expenses when they are earned or incurred.

Between the two, cash accounting gives you a less accurate picture of your finances since you don't track income and expenses as they occur. On the other hand, accrual accounting gives you a better overview of your business's financial health while conforming with GAAP (Generally Accepted Accounting) principles.

However, when you adopt the accrual accounting method, you must be meticulous with your bookkeeping practices. Recording all transactions accurately and on time is vital, or it'll lead to errors and discrepancies in your financial statements. Therefore, this makes it more difficult for you to make sound business decisions based on inaccurate data.

Create a Chart of Accounts

The first crucial part of your system is the Chart of Accounts (COA). It contains a comprehensive list of all your accounts that should be tracked. Each account must have a specific category that transactions are assigned to, enabling thorough and organized financial monitoring. It will serve as your reference, which you’ll use to quickly categorize your transactions.

For instance, marketing and advertising should be under "Categories." It's a type of Expense, and you should only put marketing and advertising transactions under this category, like purchasing Business Promotion Window Stickers for your office and other marketing costs.

Remember to create an account for each expense or income your business uses, which you'll also list in the COA. After that, use your reference when you enter and categorize transactions later. Each account should be classified as one of the following: Income, Expense, and Cost of Goods Sold.

Customize Your Income and Expense Sheet

Once your chart of accounts is set up, the next step is to customize your income and expense sheet. You can use separate tabs on the same sheet or set it up in one comprehensive sheet. Here, you'll have to record all transaction receipts as they come in.

Within the sheet, you should fill it up using the information in your COA. Ensure all accounts are included but kept separate according to their account type (Income, Expense, or COGS). If you have created your income and expense sheet separately in tabs, duplicate it and label each one with the date range - there has to be one for each month.

Filing systems are required for businesses that deal with large financial transactions daily. They are either in paper or electronic forms, so you must keep track of these documents using a tool or software. You can snap a quick photo or scan paper receipts and store them inside a filing cabinet. The photos can be stored in a software together with other electronic receipts. Choose the best software that works for you, and stick with it.

Produce Your Bookkeeping Reports

Although this step is optional, it's highly recommended because various reports will give you an overview of how your business handles its finances. These will keep you updated regarding your company's financial health. Dozens of reports exist, but there are three fundamental reports you must consider adding to your bookkeeping system: Income statement, cash flow, and balance sheets.

A quick explanation for each report:

  • Income statement: Also known as profit and loss statement, it shows your business's profitability over time. You can break down various aspects of your company in this report, allowing you to understand which is profitable and which isn't.
  • Cash flow: Cash flow statements summarize how much your company received in a particular period. The report includes the actual cash flow from paid invoices and expenses.
  • Balance sheet: For an overview of your business assets, liabilities, and equity, a balance sheet is a must. It gives you a snapshot of your business's financial standing at a given time.

Since Microsoft Excel is a powerful tool, you can edit these reports to suit your business's needs. Add or remove categories and adjust the report to display only the necessary information. Moreover, ensure it's secure since it doesn't have built-in security features. You can either password-protect the sheet or save it in a safe location.

Keep Track of Your Small Business' Finances Using Excel

Microsoft Excel can be an affordable and efficient option for small business owners with simple bookkeeping needs. With the proper knowledge and skills, you can create a powerful bookkeeping system to help you stay on top of your finances.