Financial Management is critical for small businesses and keeping every possible Bookkeeping and Accounting best practices under their sleeves can help in garnering a clear understanding of the financial information and thus maximize the business success. As per the reports put forward by extensive study researches from the United States Bureau of Labor Statistics states that 20% of businesses fail within their maiden year and 50% within five years. Survey reports from Griffith University state that this happens mainly with the financial illiteracy that prevails among their stakeholders and professionals. An accurate and robust accounting system derived from efficient bookkeeping practices is critical in the organization of the business. This article is aimed at acknowledging businesses of the best bookkeeping practices that would benefit them with fruitful benefits for your business organization. While an ideal bookkeeping process is not a box of invoices and receipts, but transparent and accurate bank and credit card statements. Recording of bank and credit card transactions, before the reconciliation of books of bank statements, is critical for verifying the recorded payments are accurate to the best. While going through the best bookkeeping practices that are rounded up below for small business owners, we humbly believe the 10+ years of being a reputed service provider, OURS GLOBAL’s Accounting & Bookkeeping Outsourcing Services has gained us the experience and skill to do so.
Following are the Twenty Best Bookkeeping Practices for Small Businesses:
1. Determination of Accounting Approaches
Each specific businesses take the application of varied accounting approaches namely cash and accrual, based on the size and nature of their business. When the accrual bookkeeping method records expenses and profits in event of cash transfers as suitable for big businesses, a cash-based system is suitable for small businesses, even with tricky cash flow management. Cash-based systems register profits even when actual cash exchanges in the forms of receivables and payable incur, whereas the accrual accounting method adept with accounts for assessing the true financial status of the company.
2. Isolation of Personal and Business Finances
Personal and Businesses finances when isolated separately for bookkeeping can avoid all kinds of confusion. Assisting businesses in enforcing strict rules for restricting the usage of company finances for personal use. Merging expenses and incomes is the most common mistake that businesses make causing hassles for them in the future. Businesses should always open new separate bank accounts and equip themselves with a separate business credit card. Separating personal accounts this approach helps businesses in building their credit rating. Eliminating the chances of inaccurate allocation of funds that can cause cash flow issues, also further adds complication over tax filing and auditing process. Inaccurate fund allocation will increase cash flow issues and lead to legal troubles too. Especially, small businesses must be careful in separating business expenses from personal ones. Opening a different bank account and card for the business gets the job done and helps in eliminating tax filing complications and keep expenses in control.
3. Time-to-Time Reviewing of Bookkeeping Process
Regular monitoring over bookkeeping practices is surely hard but reviewing and verification is critical for invoice approval. Checking every invoice before approval is also an effective option. Maintaining a robust bookkeeping team or outsourcing accounting and bookkeeping requirements helps businesses to ensure the completion of duties and execute control over accounting operations. With the application of constant reviewing and approval processes across the business, owners can ensure everyone following the same rules effectively.
4. Effective Leverage of High-End Technology
The application of proper and high-end technology, allows businesses to solve their accounting troubles. The software does ensure businesses track daily transactions, accurate estimation, invoice management, and access, track pending invoices and quick follow-ups for expedited payments effortlessly. Rather than using excel sheets, technology can also help the generation of accurate profit-loss statements. With the proper technology, businesses can also scan physical documents and digitize them avoiding any chances of losing the information in the future.
5. Inception of Internal Control Authorities
Fraudelency among bookkeeping operations is too high and businesses must ensure the implementation of internal controls for cutting down the risk of the same. Businesses should classify bookkeeping practices and financial responsibilities among different departments, without giving any single employee complete control or authorization over record maintenance and asset custody simultaneously. Businesses can come to find many benefits over their attempts in keeping their accounts healthy and efficient if they choose to outsource their bookkeeping operations.
6. Hiring of the Best Talent
Assigning bookkeeping practices to non-professionals who don’t have much expertise over accounting practices can prove more costly for businesses and more troublesome results. With greater accountancy staff, small businesses can save a lot of capital in taxes with their comprehensive knowledge of tax laws. Application of best-in-class technologies into accounting and bookkeeping operations does show results but without the proper skill to look over the same, it’s nothing. Businesses must invest proper time in finding the right people for the accounting department who will minimize error helping save taxes and simplify the whole bookkeeping process. Hiring a bookkeeper or consulting with a CPA- or both will benefit businesses in saving time and money. Serving the role as an adviser and consultant, they help businesses in determining the best financial practices.
7. Advanced Planning on Taxes
If you’re ignoring your taxes for the end of your financial year, you’re making a huge mistake. Instead, prepare yourself for the tax season at least a year in advance to avoid unwanted situations. Entering expenses and deposits in the system after a substantial time passes is a bad overall strategy for small businesses. You can easily forget to include all the expenses, and that may cost your business serious tax trouble. So, ensure you record each loan, revenue source, fund, and profit statement clearly in your accounting system to manage taxes efficiently. Use the best software and the best talent you can afford to keep your accounts during the tax season.
8. Exercising Phased Methodologies
If you’re still keeping books manually, be careful about optimizing too many processes at the same time. So, consider opting for a phased approach by streamlining a few processes first, and then, moving to others. Train the first batch of accountants on the new system and give them ample time to adjust to the system. Eventually, roll out the solution to all accountants phase-wise and prevent shocking them significantly.
9. Application of Professional Accounting Softwares
Small businesses can benefit from diverse choices of Accounting software that are available in the market. Ensuring the software is appropriately tailored to the respective business makes it easier for users and ensures benefits while its use. Focusing on the initial setup of accounting systems is critical and businesses should consider the help of a professional for customizing account charts, products and services, customers, vendors, and invoices. With their assistance, businesses can make themselves aware of how to make changes to these lists as necessary. With complete and accurate transaction listings, businesses can make sure, easy issuing of invoices and payment of bills.
10. Assignment of Bookkeeping Tasks
Businesses while taking bookkeeping tasks to themselves always lacks professionalism in their practices. As bookkeeping such as invoice issuing and bill payments tasks are integral to their accounting operations, businesses can’t outsource such tasks. Even if other tasks such as closing the books, reconciling accounts, and producing financial statements are outside core business operations, businesses must choose in assigning such tasks to a tight timeframe. While transferring such task assignments to professionals, businesses can maintain efficiency and appropriateness at each level.
11. Analyzation of Accounting Reports
Bookkeepers must not be disturbed for the task of analysis of accounting reports when their only task is for inputting the data into the software. Businesses managers must take this task of examination of the accounting system for effective business management. Assigning each accounting report over Aged accounts receivable, aged accounts payable, and cash flow statement helps businesses to solve the struggle of the cash flow. When Aged accounts receivable helps businesses in knowing the amount each client owes them, debit or current, this report is also an indicator of future cash flow. Aged Accounts payable reports shed light on the amount the business owes to each vendor and helps businesses to know future cash flow requirements and helps in anticipation of cash flow strategies that require immediate addressing. Separating cash flow from the operation, investment, and investment activities, the cash flow statement helps in identifying negative cash flow. Business owners must also obtain knowledge in producing and understanding financial statements, which makes them efficient for generating these statements from time to time reviewing.
12. Imminent Focus over Account Receivables
Management of Accounts Receivable is quite hard, but it’s the outstanding accounting balance that each customer pay runs the business. But each customer payment must be applied to their invoices and properly recorded without any fail. Proper and timely customer deposit reconciliation will avoid overpaying of tax returns and high debts. Keeping a track of financial transactions and time to time applying customer payments helps in saving both time and money.
13. Setting up Accurate Cash Flow Statements
Businesses must have an extensive understanding of accounting operations. Alongside weekly and financial reviews, businesses must choose in the development of cash flow statements. Such statements give an understanding of cash flow movement inside & outside the company. Monitoring the income direction, including the element of time and accurate visualization of payment cycles & seasonal expenses, insights from cash flow statements helps businesses in anticipation of expenses and appropriately allocate income benefitting building of financial trajectories. With appropriate technology, businesses can get a holistic vision of the functioning of business models.
14. Logging in Expense Reports
Most small businesses fail to save copies of expense reports leading to tax, accounting, and cash flow issues. Poor record-keeping makes it hard for businesses to the variations in bank statements. These problems can easily be solved by saving receipts with every business purchase. Using credit cards for business expenses and keeping a record of receipts and tracking it can help businesses to be organized in filing taxes on time. These expenses can be classified into out of town/travel expenses, home office expenses, Entertainment, meals & gift expenses. Businesses must also in taking time in making employees aware of the importance of saving receipts and itemizing expenses for accurate recording.
15. Differentiated Awareness over Invoice & Receipts
Small business owners must have a clear understanding of the differences that make invoices and receipts apart. With proper accounting guidance, businesses can easily find the difference. When an invoice is a bill that states a customer has received your service, whereas a receipt is the proof of a transaction. Invoice defines everything that a customer has received and reminds customers of the money they owe to a business, speeding up cash flows and accuracy of financial records. Businesses must not mix up receipts and invoices or else they will end up in a lot of trouble while balancing the books.
16. Maintenance of Clear Communication with Accountants
Small business owners must maintain robust relationships with accountants/bookkeepers for eliminating all confusion. It is critical for businesses in understanding the terms they are using. Seeing accountants and tax professionals as a part of your business team will watch your back and helps with critical accounting tips that support every step of the accounting operations.
17. Understanding Double Entry Book-keeping
Small businesses which don’t use accounting software but physical books for their bookkeeping operations are prone to double entry. While making business purchases, recording should be done of not only the expenses but also whatever gained. To be clear under double-entry bookkeeping, recording should be done also over the inventory gain. This can be a true representation of where the money is going and helps businesses in making the best decisions for their businesses.
18. Charting Accounts
A comprehensive financial picture of a business requires multiple accounts. Recording each business aspect with space makes it easy for logging into transactions and adjust account balance accordingly. Important accounts such as Accounts Receivable, Accounts Payable, Sale3s, Purchases, Payroll Expenses, Owners Equity, retained earnings must be kept with proper tracking. For proper detailed orientation, businesses must split their sub-accounts for keeping track of organizational transactions or product purchases.
19. Preparation of Accurate Financial Statements
Businesses require different kinds of financial statements such as balance sheets, income statements, cash flow statements, etc. Preparing each of these financial reports on a monthly or a quarterly basis helps businesses in analyzing business health at different stages at varied perspectives. With a clear picture of the business’s assets, liabilities, and equity at a specific moment in time. When the Income statement reveals income and expenses over a defined period, cash flow statements give businesses a clear understanding of cash balances that have changed over time. Public trading companies are required to develop financial statements on a quarterly or annual basis for their investors and it’s up to them for deciding the kind of report that will suffice their requirements.
20. Visionary Perspectives with Future Business Projectors
Anticipation of business trajectories requires the compilation of monthly financial reports. Starting with the identification of upcoming costs such as tax payments and legal fees. Incorporating appropriate plans for company expansion, including budgeting, forecasting can be helpful for skillful planning of significant milestones for business evolution. Effective forecasting of financial data monthly can also guide businesses with smart investment guidance.
With each block of accounting foundation reckoning how a successful business is built, all the best bookkeeping practices that are noted above can help you ensure businesses in driving their whole team towards the common goal of business growth. Realizing the bookkeeping team as a part of the whole business team and equipping them with proper tools and guidelines helps businesses in ensuring optimum business performance and desired results. OURS GLOBAL’s Accounting & Bookkeeping Outsourcing Services offers small and medium-scale businesses options for better management of accounting and bookkeeping functions. Our advanced technical expertise with experienced team members helps businesses with maximum profitability allowing businesses in realizing profitability with efficiency gains and cutting down the time required for spending on such functions. Ping us now and get timely, cost-effective, and scalable Bookkeeping operations for the smooth accounting processes at their best.