Bookkeeping Best Practices for Your Small Business
Recent statistics show that nearly 60% of small business owners feel like they don’t have the knowledge necessary to handle their own accounting. Do you fall into this category? If so, don’t get discouraged as learning the intricacies of bookkeeping takes time. Following these best practices is a great starting point when looking to take control of the bookkeeping function in your small business.
The Association of Certified Fraud Examiners estimates that nearly 30% of businesses experience some type of fraud. This study includes both small and large businesses, meaning your business is at risk. Separating duties in your business is one of the most common and cost-effective ways to reduce the risk of fraud in your business.
Take a look at your current job duties and who completes them. Is someone preparing bank reconciliations and handling customer payments? If so, this gives the employee the opportunity to commit fraud. Each major area of your bookkeeping function needs to be separated to reduce fraud.
Link Bank Accounts
Technology has made it increasingly easy to connect multiple platforms with your accounting software program. Linking each bank and credit card account with your accounting software significantly reduces your data entry burden. Instead of having to enter every transaction, you will only need to review the data that imports from your bank.
Linking each bank account ensures completeness in your accounting function and makes reconciliations flow smoother. A majority of accounting software programs have the capabilities to integrate with banking platforms, but it’s always a wise idea to double-check before you select your program.
Reconcile Bank Accounts
Reconciliations are one of the most important bookkeeping procedures that small business owners implement into their accounting functions. A reconciliation compares the information entered into the accounting software with what actually cleared the bank. This allows you to analyze any differences to ensure your accounting records are accurate.
Reconciliations should be completed for each account that you receive a monthly statement for, such as checking accounts, investment accounts, and credit cards. The bank does make mistakes periodically, making it essential to follow up with any questions timely.
Review Financial Reports
Reviewing financial reports is a vital component when trying to scale your business. How can you expect to grow if you have little to no knowledge of how your business is currently performing? Reviewing the basic financial statements should be done on a regular basis. Understanding financial ratios and what they tell you about your business can aid in the reviewing process.
The more transactions and financial goals your business has, the more frequently you will need to review your financial statements. At a minimum, you should be reviewing your income statement and balance sheet. These two statements are the ones that third-party investors and lenders pay close attention to, making it important to monitor progress.
Monitor Payables and Receivables
In addition to the income statement and balance sheet, you should be reviewing your accounts payable and accounts receivable reports. The accounts receivable aging schedule tracks the money customers owe to you and breaks it down on a monthly basis. Neglecting this function can lead to cashflow management issues when customers forgo paying you for a period of time.
The other report to closely monitor is your accounts payable aging schedule. This tracks the money you owe to vendors, customers, and employees. Missing payments can result in a poor relationship with your vendor, ultimately leading to higher charges. On-time or early payments allow you to take advantage of early payment discounts and build a mutually beneficial relationship.
Backup Your Accounting Software
Many small business owners won’t have to worry about backing up their accounting software since a majority of programs have shifted o a cloud-based approach. Nevertheless, business owners who utilize a desktop server should frequently back up their accounting data to their local computer drive or the cloud. Losing all accounting data because of a computer crash can be detrimental and extremely difficult to piecemeal your system back together.
Compare Financials to a Budget
A bookkeeping best practice is to create a budget that is regularly compared to the actual financial statements. A budget outlines where you want your revenue and costs to fall to achieve a certain profitability percentage. Even successful businesses have a budget because it helps keep all team members on track.
When creating a budget, be realistic. You don’t want to create a goal to cut costs by 50% if that’s not attainable. Set measurable and realistic goals for both the short-term and long-term. Then, consistently review progress. This is commonly done when the financial statements are reviewed after all reconciliations are complete.
Consult With an Expert
Small business bookkeeping can get tricky, especially with new rules and regulations being passed on a monthly basis. Don’t be afraid to consult with an expert when your business needs it. Consulting with an expert allows you to continue to implement bookkeeping best practices and keep your business on track for financial growth.
Some business owners take it a step further and outsource their bookkeeping and accounting. This can be a great option for busy business owners who simply don’t have the time needed to follow up on accounts receivable balances or review the financial statements for accuracy. Take a look at how many hours you are able to dedicate a month to your bookkeeping. Is it enough?
The bookkeeping best practices you find useful for your business aren’t going to be the same for every business owner. This is why it’s critical to uncover the policies and procedures that promote success within your organization. Maybe that’s creating a regular budget or outsourcing your bookkeeping function. Whatever the case, bookkeeping is the backbone of running a successful business.
For business owners who are leaning towards outsourcing, finding the right candidate can be tricky. Luckily, the team at Bookkeepme has the resources and availability to take this burden off your plate. Reach out today to schedule a consultation to dive into the different ways we can ease your workload while providing the bookkeeping services necessary to achieve business growth.