Basic Bookkeeping Guide for Small Businesses

1. Revenue (Income)

All the money your business earns from selling goods or services. This includes cash sales, bank transfers, card payments, and online transactions.

2. Expenses

All the money your business spends to operate. Rent, salaries, inventory purchases, transportation, subscriptions, anything that costs your business money.

3. Profit and Loss

Gross Profit = Revenue - Cost of Goods Sold (direct costs like materials or inventory)

Net Profit = Gross Profit - Operating Expenses (rent, salaries, utilities, etc.)

4. Cash Flow

The movement of money in and out of your business. You can be profitable on paper but still run out of cash if customers pay late or you overstock inventory.

5. Accounts Receivable vs Accounts Payable

Accounts Receivable: Money customers owe you (e.g., you delivered goods but haven't been paid yet)

Accounts Payable: Money you owe suppliers (e.g., you received materials but haven't paid yet)

Step 1: Open a Separate Business Bank Account

This is the single most important step. Mixing personal and business money makes bookkeeping nearly impossible. Open a dedicated business account and run all business transactions through it.

Step 2: Choose Your Bookkeeping Method

Step 3: Set Up Your Chart of Accounts

A chart of accounts is a list of all the categories you use to classify transactions. Here's a simple starting point for most SMEs:

Step 4: Pick a Recording System

You have options ranging from a simple notebook to spreadsheets to dedicated software. The best system is the one you'll actually use consistently. For most businesses today, a tool like Nexa eliminates the manual work entirely; you just tell it about your transactions through chat and it organises everything for you.

1. Profit & Loss Statement (Income Statement)

Shows your revenue, expenses, and profit over a specific period (monthly, quarterly, or yearly).

2. Cash Flow Statement

Shows the actual cash moving in and out of your business. This is critical because you can make a sale today but not receive payment for 30 days. The profit & loss says you're profitable, but your bank account might be empty. The cash flow statement reveals this gap.

3. Balance Sheet

A snapshot of what your business owns (assets), what it owes (liabilities), and the owner's equity at a specific point in time. For most small businesses, this becomes important as you grow and seek funding.

Mixing personal and business finances

Using the same bank account for business and personal expenses makes it impossible to know your true business profit. Open a separate business account, most banks offer free or low-cost business accounts.

Not recording small transactions

That $5 for supplies, $10 for printing, $15 for a subscription, they add up fast. Over a year, untracked small expenses can total thousands of dollars.

Waiting until month-end to record transactions

By month-end, you've forgotten half your transactions. Record daily, or use a tool that captures transactions as they happen.

Not keeping receipts or proof of payment

Without receipts, you can't prove expenses to the tax authority, and you can't resolve disputes with suppliers or customers.

Ignoring accounts receivable

Money owed to you is not money in your pocket. Track who owes you, how much, and when it's due. Follow up on overdue payments promptly.

Not reconciling with bank statements

Your records should match your bank statement. If they don't, something has been missed or recorded incorrectly. Do this at least monthly.