Anyone starting or owning a business should know some bookkeeping tips. Whether startups, large corporations, or anything in between, keeping organized finances is a must.
Below we’ll describe certain tasks and provide our recommendations for how to tackle them. Even if you don’t do your own books, we still believe it’s helpful to understand how some of these processes work.
Understanding Bookkeeping Basics
A. Definition of Bookkeeping
Bookkeeping is an essential part of your financial management and accounting operations. It involves the recording of transactions like money or money equivalents moving to and from your business to another business or entity.
The main goal of bookkeeping is accurate and organized financial recording. Our bookkeeping tips will center on this.
B. Importance of Accurate Records
There are three main reasons you would want to keep accurate accounts.
- Bookkeeping shows you how effectively you’re spending money and where. It’s essential for proper budgeting and helps you split up your resources.
- Keeping accurate records helps you forecast expenses. You can make an accurate estimate of how much you spend to run your business monthly or yearly. This can help you make other calculations.
- You need it to meet the legalities of tax compliance. Businesses need to calculate tax obligations to the cent. Failure to do so can result in penalties and repeated action can lead to getting your business shut down.
Organizing Your Bookkeeping System
A. Choosing the Right Software
Bookkeeping and accounting software are almost a necessity nowadays. The speed and convenience they provide is almost always worth the investment.
Don’t choose just any tool, though. It should be a flexible software that meets your specific needs and can scale with your business.
B. Setting Up Chart of Accounts
A chart of accounts is an organized list of financial transactions that are categorized and have reference numbers. The five main accounts are assets, liabilities, expenses, equity and revenue. Most businesses also have sub-accounts to further specify transactions.
C. Establishing Consistent Processes
This means making sure you and your staff adhere to GAAP (Generally Accepted Accounting Principles). You should have standard bookkeeping operating procedures and processes.
This is especially true if you’re moving from one bookkeeper to another. It will be much easier for them if you have a framework or if you follow the most widely used methods.
Daily Bookkeeping Practices
A. Recording Transactions Promptly
This is one of the bookkeeping tips you’ll see repeated often. Creating these journal entries or transaction records may not always be possible at that moment. However, the sooner you put them in the ledger, the better.
B. Reconciling Bank Statements
Bank reconciliation is a process that involves comparing your bank balance to your book balance. This is important because of the delay that often occurs when making withdrawals or deposits. Thankfully, most bookkeeping software do offer automation for this process.
C. Tracking Expenses and Income
You should know when and where you’re spending and earning money. You can track this collectively within a time frame – usually monthly. Alternatively, some like to track based on projects or separate them based on revenue stream.
Weekly and Monthly Bookkeeping Tasks
While there are several bookkeeping tasks you should be aware off, here are the most common and essential.
A. Reviewing Financial Reports
The big three financial reports you should familiarize yourself with are:
- Cash Flow Statement
- Profit and loss or Income Statement
- Balance Sheet
Other financial reports include bank statements, statements of retained earnings, tax.return statements, and more.
These statements record your activities and important information on your financial standing.
Through them you can assess what your next step is. That can look like improving budgeting by assessing if there are unnecessary expenses. It can provide other actionable insights towards business growth.
B. Updating Accounts Receivable and Accounts Payable
You record accounts receivable (AR) as assets owed to you by entities. If you bill someone for using a service but haven’t received payment, that’s recorded as an AR transaction.
Accounts payable (AP), alternatively, is a liability account as these trasnactions refer to something you owe another. If a company invoices you for an order placement, that would be recorded as an AP transaction.
Recording AR and AP transactions are part of the double-entry bookkeeping system.
C. Analyzing Cash Flow
Cash flow is the movement of revenue to and from your business. Analyzing cash flow involves tracking cash sources (inflow) and comparing them to cash outflow. A cash flow statement is where this information comes together and you can make decisions based off of it.
Bookkeeping Tips for Streamlining Processes
A. Automating Repetitive Tasks
As mentioned earlier, software can help with automatic reconciliation, but that’s not all. They can help you track expenses and generate financial statements and reports.
Invoicing is also easier with the ability to schedule payments and payroll. Software can also help save time by categorizing transactions for you, though not always accurate.
B. Using Cloud-Based Solutions
Another benefit of accounting software is record-keeping. If you hate ruffling through papers or scrolling through digital files, these cloud storage solutions come in handy. Not only do they store your receipts and tax-ready records, they can also save previous financial reports and invoicing information.
C. Outsourcing Bookkeeping Services
DIY bookkeeping definitely has its benefits. It doesn’t always make sense to hire someone else to manage your financials if you are a smaller business. However, the faster business grows and the busier you get, you’ll need to start choosing where best to spend your hours.
This is where hiring a remote bookkeeper or bookkeeping team might make a lot more sense. Their expertise and experience often leads to more accurate and efficient recordkeeping, and more flexibility for you.
Ensuring Accuracy in Bookkeeping
A. Double-Checking Entries
Whether you’re doing it, another staff member, or bookkeeper, make sure that you have a system of checks and balances. (Pun unintended!)
This is actually one of the draws of subscribing to bookkeeping services over hiring a single person. These services have multiple people on staff, SOPs, and processes that ensure your books are checked multiple times for errors and discrepancies.
B. Reconciling Accounts Regularly
Ideally you shouldn’t wait until the end of the month to reconcile accounts. Not only will this take more time, but there’s a higher probability of missing something.
Catch-up bookkeeping is a service popularized due to companies not staying on top of their recordkeeping. While these may not always be as straightforward, as the old adage goes – prevention is better (and cheaper!) than a cure.
C. Conducting Internal Audits
An audit is an investigation or inspection of a business’s financial records and statements. This is to basically check if a company is conducting their accounting in a fair and honest way. Audits help detect fraud and poor adherence to accounting principles.
Scheduling an audit of your own processes can help you avoid a forced audit by the IRS (Internal Revenue Service) or other related entities.
Troubleshooting Common Bookkeeping Errors
A. Identifying and Correcting Mistakes
Common accounting mistakes include entry errors like inputting the wrong numbers or not inputting the numbers at all.
You can’t always catch these the first time around. That’s why double-checking and recalculating entries are essential bookkeeping tips and practices.
B. Implementing Preventive Measures
- Hire trained staff or have them go through proper training processes
- Don’t rely too heavily on accounting software. Always make sure there’s a person to check if automation is working smoothly and transactions are recorded correctly.
- Practice reconciliation and updating records on a daily rather than weekly or monthly basis.
Frequently Asked Questions
How often should I reconcile my accounts?
As much as possible, you should reconcile accounts daily for a decreased risk of error.
What are the advantages of using cloud-based bookkeeping software?
The main advantages of using cloud-based bookkeeping software are efficiency and time saving features with automation, ease of use, and accessibility of files. You and your accountant can view your books simultaneously together even remotely or while on the go.
How can I ensure the security of my financial data?
If you store any data on your computer or hard drive, invest in an antivirus software. Even if you’re careful with the websites you visit, it’s still better to be safe than sorry.
Make sure all the other tools and services you use are reputable with data security features, clauses, and guarantees.
Working with certified bookkeepers and accountants with real client experience also lowers the risk.
What should I do if I notice discrepancies in my financial records?
Notify your bookkeeping team and reconcile it immediately. The longer you go without solving it, the more complicated it can get to fix. You also run the risk of forgetting only to encounter a rude reminder in the form of a mandatory audit or a tax penalty.
When is the right time to consider outsourcing bookkeeping tasks?
- When the cons outweigh the benefits of DIY bookkeeping
- When the time you’re spending on bookkeeping keeps you from spending time scaling your business
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
In Summary
Knowing how to organize your resources helps you budget, plan ahead, and make profitable business moves. These bookkeeping tips and processes help you understand the importance of proper financial management. Whether DIY or outsourced bookkeeping services, clean books can certainly lead to smoother sailing.
