Unless you are setting up a bookkeeping practice, you do not go into business to do bookkeeping! Most people tend to go into business following a passion, or because they see a niche in the market.
However, bookkeeping is an essential part of running any business, and whilst it can seem complicated, when done well it can be relatively simple.
Good bookkeeping can save time and provide critical business insight. In this article, we outline some hints and tips to help setup and manage your bookkeeping.
As soon as you setup your business you should setup a business bank account, ideally with online banking and statement access. Also consider getting a business credit card, both to improve the credit rating of your business but also to help manage cashflow.
From day 1 you should ensure that only business expenses are paid from the business accounts and try and keep personal drawings to a schedule, either weekly or monthly, rather than on an adhoc basis as this will make recording and managing the bookkeeping entries quicker and easier.
A cloud-based accounting system can help take the pain out of bookkeeping and there are several well priced options in the market.
When a system is setup in a suitable way for your business you will find it easier to manage the data entry as well as also having access to various reports to help manage your business.
Consider getting an accountant to help you setup the system so that the basic functions are working properly, bank accounts are integrated where possible and some standardized reporting is setup.
Record management and storage is fundamental to good bookkeeping. When it comes to submitting accounts being able to find the backup for your transactions is critical.
Most cloud-based systems can also double as a record management system as you can digitize your receipts and attach them to transactions in the system. This has the added benefit of being backed up so you can be safe in the knowledge that your records are secure.
There are several bookkeeping tasks that do need to be completed on a regular basis if you want to keep on top of your bookkeeping: invoicing customers, bank reconciliations, depositing cash receipts, recording and paying supplier invoices.
Depending on the type of business and the volume of transactions these areas should be reviewed on at least a weekly basis and more frequently if required.
The longer you wait to record your transactions the higher the likelihood of making errors in recording as you try and recall what each transaction was for.
Pay particular attention to cash payments and cash receipts. These should be reconciled and recorded immediately because trying to remember at the end of the month what each cash withdrawal/deposit is for will be a time consuming and error-strewn process.
Ideally, you should keep cash transactions to a minimum to reduce the risk of error and also reduce the time taken to reconcile and record the transactions.
You should also ensure that on a monthly basis your bank account is fully reconciled and all transactions are recorded correctly.
Once you’ve setup your system and are regularly entering all of your transactions you should set aside regular time to review.
Reviewing serves as a way for you to check the accuracy of the information being entered because without accurate information you will not be able to manage your business.
Similarly, you should also review the consistency of the entries being made to ensure that the same entries are being posted to the same place each time, which makes reviewing and understanding your financials far simpler.
Reviewing also gives you the opportunity to use all of the data being recorded to help understand your business more deeply and look for areas for growth and improvement. Spend time reviewing such things as sales performance over time, spend trends in key areas, as well as looking at the speed at which you are being paid by customers and how quickly you are paying your suppliers.
If you are not familiar with the core financial reports such as Profit & Loss and Cashflow ask your accountant for some support and guidance.
Author Peter Barker, Finance Director, Creation Business Consultants