Every small business is required to keep bookkeeping records and to produce end of year financial statements that show income, expenses and profit. This is required for tax purposes. How this is done is up to the individual business, with there being three main options – doing it manually, using bookkeeping software or hiring an independent bookkeeper.

If a small business owner chooses to do their bookkeeping themselves, either with a pen and paper or using a standard computer spreadsheet (such as Excel), then they must feel confident in their ability to deal with numbers and to understand and comply with the financial regulations in their country. The good news is that for very small businesses, doing this is not rocket science, and most businessmen capable of running and managing a business have the skills required to adequately produce the bookkeeping records.

The major disadvantage of a small business keeping manually looking after their records that documents can get lost, mislaid or misinterpreted. If this happens, and they end up wrongly declaring their profits or tax liabilities, then they may well find themselves facing a fine or some kind of penalty. It should that businesses doing their own bookkeeping will not be fully aware of all of the ins and outs of taxation law, and will probably find that with good advice and regular reviews they could probably pay less tax.

The use of bookkeeping software can make life easier for a business owner, this software will guide you through the process and show you what information is required to go where. Once it has all been filled in the software will create all the finance reports you need to take care of your taxes, they will be in the appropriate format and everything will be exactly where it needs to be.

There are a couple of problems with bookkeeping software though. Firstly, it can be quite complex to use for first time users, especially for people who are not particularly proficient with computers in general. Secondly, though good bookkeeping software will tell you what data to input and where to input it, it has no way of knowing if the data you have inputted is incorrect. Therefore, as with doing bookkeeping manually, you always run the risk of mistakes of made.

The final option you have is to hire a professional bookkeeper. The benefits to doing this will often outweigh the initial cost to hiring this bookkeeper. In fact, you will often make your money back in the future thanks to the bookkeeper knowing the ins and outs of the system and knowing how best to save money. As well as this the business owner will open up their own time to focus on other more important things.

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