Reliable Financial Information is vital for any business success. Getting such information is dependent on the business’s bookkeeping process that carefully tracks business expenses and income. For many business owners, this bookkeeping process can be time-consuming and overwhelming and they keep to juggle with it and many others decide to outsource the job.
Whether you do-it-yourself or outsource it, bookkeeping is the critical business process. It affects all the internal and external stakeholders.
Here are some best bookkeeping practices to gain success in your business:
1. Educate Yourself – Know the basics of Financial Statements
Whether you have an external accountant to whom you have outsourced your bookkeeping and accounting, or an employee managing your in-house accounting, it is imperative you know how to read basic financial statements, especially Income statement and Balance Sheet. These financial statements are a critical source of determining your business’s financial well-being. Being financially informed will help you make sound business decisions.
- Balance Sheet – It is a statement of financial position at a certain point in time; it shows the company’s total assets, liabilities and owners’ stake in the business.
- Profit & Loss or Income Statement – shows the revenues generated and expenses incurred during a particular period. It helps in taking timely corrective actions if needed.
- Cash Flow Statement – details the flow of cash (inward and outward) as a result of the company’s operating, investment and financing activities.
2. Separate Personal and Business Expenditures
It can be tempting to declare certain “personal” expenses as legitimate business expenses to gain short-term tax benefits. Resist the temptation for two reasons. First being, it distorts the true financial performance of a business, a factor that may deter potential external investors in the future. Secondly, it is advisable to alert the revenue authorities to start digging deeper into information submitted to them. Not to mention that tax authorities take tax evasion as a serious offence and have steep penalties and legal remedies. And yes, nowadays there are smarter ways to detect such misstatements. Keep your books clean by separating all your personal expenses from the business ones, it will be much easier to answer any of the queries by the auditors or revenue authorities.
3. Automate Payments and Collections
You must learn to take advantage of technology!
Enroll recurring bills on e-Payments and regular customers in e-Invoicing. This practice avoids past due bills and un-accounted revenue; results in better credit history and cash management. Nowadays cloud accounting solutions have all this automation part of the package.
4. Monitor Your Receivables
Closing a deal or signing another customer is awesome! But remember, a sale will not help the business until cash is collected. Learn to read Accounts receivables ageing report. Collecting receivables on time will result in fewer bad debts and help to improve the cash position.
5. Identify and Strictly Implement Internal Controls
Internal controls are critical to achieving financial goals. Put appropriate controls throughout the organization and strictly implement it. If you are using an external bookkeeper or accountant, make sure to handover him your list of internal controls.
6. Do Bank Reconciliation Regularly
The monthly reconciliation of bank account is a minimum standard. As soon as you receive your bank statements, make it a habit to reconcile them right away. Make sure that the balance you have in your books matches your bank account. This will result in fewer accounting costs at year-end and avoid any surprises.
7. Set A Routine of Closing Your Books and Stick To It
Close your books every month and set a “set of management reports”. This would allow you to see how your business performed over that month. This would also enable you to plan ahead, change or adjust your existing plans, and make sound business decisions.
Remember, a good business decision is not good anymore if it is not made at the right time.
8. Pay Taxes on Time
These are obligations that you must pay whether you like it or not. Creating a separate account for each category of tax liability will help you in keeping track of these payments. Remember; when you miss such payments, tax authorities often reject your requests for favourable and allowable payment plans in the future. Late payments do attract interest charges and penalties from tax authorities.
9. Ask Questions
Whether you have in house accountant or external bookkeeper, ask questions and don’t trust his work blindly. There can be chances of mistakes because accountants are human beings too and prone to mistakes and errors like anybody else. It is natural!
10. Appoint a reliable Accountant
Whether you do your own bookkeeping or have someone do it for you, it pays to have a reputable accountant to ensure proper reporting and compliance. This doesn’t mean that you must hire the top accounting firm with fancy offices in downtown. You can hire the one in your area or another on a freelance basis to get a better value at a low cost. Such a hire will certainly provide you with a more personalized professional service.
Above is the minimum one can do to have a proper bookkeeping process. As the business expands more factors kick in while deciding on the bookkeeping for your business.