Small business bookkeeping: A simple guide for beginners

Published Thursday 27 November 2025

Table of contents

• What is bookkeeping?
• Why do small businesses need bookkeeping?
• Different bookkeeping methods
• Setting up your bookkeeping system
• How to do bookkeeping
• How software can help
• Outsourcing small business bookkeeping
• Getting started with bookkeeping for your small business
• FAQs on small business bookkeeping

Key takeaways

• Implement a systematic approach to bookkeeping by recording every financial transaction and reconciling your records against bank statements regularly to maintain accuracy and catch errors early.

• Choose accounting software over manual methods or spreadsheets to automate routine tasks, reduce errors, and gain real-time visibility into your business finances as you grow.

• Maintain organised records of all business documents including invoices, receipts, and bills, as Australian law requires keeping most financial records for five years after transactions are completed.

• Consider outsourcing bookkeeping to professionals when your business grows, allowing you to focus on core operations while ensuring compliance and accuracy in your financial records.

What is bookkeeping?

Bookkeeping is the process of recording and classifying all financial transactions in your business. It tracks what money comes in and what money goes out.

Bookkeeping started with paper records, but now most businesses use software.

• record transactions in paper daybooks, cashbooks and journals
• use bookkeeping software instead of manual ledgers
• track your business finances

Why do small businesses need bookkeeping?

Small businesses need bookkeeping to maintain financial control and make informed decisions. Accurate records provide essential business insights and legal compliance, which in Australia includes the Australian Taxation Office (ATO) requirement to keep most records for five years.

Key benefits include:

• track your profitability so you know if you are making more than you spend
• use reliable information for budgeting and planning
• manage cash flow by tracking payments and receipts
• spot errors or fraud quickly
• keep accurate records for tax returns – the Australian Taxation Office (ATO) requires you to keep most records for five years after a transaction is completed
• work more effectively with lenders, investors and accountants

Different bookkeeping methods

You can manage your books manually, with spreadsheets or with accounting software. Choose the method that fits your business size and how much time you want to spend.

Manual bookkeeping

Manual bookkeeping uses pen and paper ledgers. It does not require technology, but it can take more time and may not give you a quick overview of your finances.

Spreadsheet accounting

Spreadsheets let you automate some calculations, but you still need to enter data manually. As your business grows, managing spreadsheets can become more complex.

Accounting software

Online accounting software automates tasks like recording transactions from your bank. This saves you time, reduces errors and gives you a real-time view of your finances so you can make informed decisions.

Setting up your bookkeeping system

Set up your bookkeeping system from the start to make daily tasks easier.

Choosing your method

Choose spreadsheets for very small businesses, or accounting software if you want a solution that saves you time as your business grows.

Setting up a chart of accounts

Your chart of accounts lists all your business accounts, grouped as assets, liabilities, income and expenses. Most accounting software provides a standard chart you can customise.

Organising your records

Keep all your business documents, such as invoices, bills and receipts. The Australian Securities & Investments Commission (ASIC) requires companies to keep records for seven years. Software with a mobile app lets you take photos of receipts so you do not lose them.

How to do bookkeeping

Small business bookkeeping means recording every transaction and regularly checking your records against your bank statements.

These core tasks work together to:

• Capture all financial activity in your business
• Verify accuracy against bank statements
• Maintain reliable records for decision-making and compliance

Recording every transaction

Record every transaction in your business. Modern software can automate much of this process.

Sales recording:

• enter sales into spreadsheets or cashbooks
• download sales data from your point-of-sale or invoicing software

Expense recording:

• record every business purchase
• keep proof of purchase for tax deductions
• connect your bank account to bookkeeping software to import transactions automatically

You can record income and expenses using cash or accrual accounting methods.

Reconciling every transaction

Reconcile your records to make sure they match your bank statements and explain any differences.

Common discrepancies to account for:

• Bank fees and interest payments
• Deposits in transit
• Outstanding payments not yet processed

Reconciliation frequency:

• High-volume businesses: Daily reconciliation prevents work pile-up
• Medium-volume businesses: Weekly or monthly reconciliation
• Minimum requirement: Before tax return submission

Reconciling early helps you find and fix errors quickly, so you avoid costly mistakes.

You can learn more in our guide on how to do bank reconciliation.

Other small business bookkeeping duties

If you're acting as bookkeeper for a small business, you may also be responsible for:

• accounts receivable (issuing invoices and making sure they're paid)
• accounts payable (paying bills on time)
• payroll (paying employees)

Professional bookkeeping services can also help with financial reports, such as profit and loss, balance sheet and cash flow reports, and measure your business performance. Many bookkeepers are also registered business activity statement (BAS) agents and can help you file your taxes.

How software can help

Bookkeeping software automates routine tasks and reduces errors, saving you time and improving accuracy.

Key automation features:

• pull transaction data from your point-of-sale (POS) system, invoicing software and bank
• speed up bank reconciliation
• pay bills automatically
• send invoice reminders to customers
• notify you when invoices are paid
• let you check cash flow from your phone

Outsourcing small business bookkeeping

Outsourcing your bookkeeping lets you delegate financial record-keeping to professionals while you stay in control of service and costs.

Service flexibility:

• Basic bookkeeping: Modest cost for essential transaction recording
• Advanced services: Comprehensive financial reporting and analysis
• Scalable approach: Start small and expand services as your business grows

Professional bookkeepers help you stay accurate and compliant, so you can focus on growing your business.

You can find bookkeepers in the Xero advisor directory for Australia.

Getting started with bookkeeping for your small business

Bookkeeping can be simple. Set up a system and stay organised to build a strong foundation for your business. When you are ready, try Xero accounting software for free to see how easy it can be.

FAQs on small business bookkeeping

Here are answers to some common questions small business owners have about bookkeeping.

What is the best bookkeeping method for a small business?

...most small businesses benefit from using accounting software with double-entry bookkeeping methods.

Can a small business do their own bookkeeping?

Many small business owners manage their own books, especially when starting out. Using software designed for non-accountants makes it easier to handle your finances and can save you money.

How much do bookkeepers charge per hour in Australia?

Bookkeeper rates in Australia vary by experience, qualifications and location. Get quotes from a few bookkeepers to compare rates in your area.

How often should I update my bookkeeping records?

Update your books regularly. Spending a few minutes each day or week is easier than waiting until the end of the month. Regular updates help you keep track of your cash flow.

What bookkeeping records do I need to keep for tax purposes?

In Australia, you need to keep records of all your sales, purchases, expenses and payments. This includes invoices, receipts, bank statements and payroll records. Check the Australian Taxation Office (ATO) website or speak to a tax professional to make sure you meet all your obligations.