Bookkeeping Best Practices
Bookkeeping best practices are the same whether you have a professional Bookkeeper or not – though it has to be said that it is easier for a Bookkeeper to stick to the rules as they are second nature for them!
Keep Business and Personal Finances Separate
Keeping personal and business expenses separate is the key to managing your finances. You can run into cash flow issues and all kinds of complications when they are mingled together. It may also cause problems with limited liability.
Proper Internal Controls
If you are a sole trader it is likely that you will be doing everything yourself unless you have taken the wise choice to employ an external Bookkeeper. If staff are handling your finances then you need to make sure that proper checks and balances are in place to prevent problems.
Decide on Your Accounting Method
There are two principal methods – cash and accrual. Cash accounting is when you record transactions at the time they happen. Accrual is used more when you are invoicing with payment terms on both accounts receivable and payable.
Modified cash accounting is when you record expenditure at the time it happens but invoice clients for work so there are accounts receivable in your ledger.
Once you have decided on a method you must stick to it.
Use an Accounting Package
The days of recording business transactions on the back of an envelope and taking a carrier bag to your Accountant are long gone. Accounting packages are not complicated and will make your life easier. If you have a Bookkeeper they will be able to access your accounts and help keep you up to date and well informed. We recommend Xero as a good all round solution.
Make Sure You Allocate Costs Properly
It is all too easy to let small things slide which can lead to expenses not being properly allocated to jobs. This will have a major impact on your profitability. Make sure expenses are allocated to the right job at the right time, setting up your table of accounts is not difficult and your Bookkeeper will advise you.
Manage Your Accounts Payable and Receivable
Cash flow is important to any business – large or small – and it’s proper management can be the difference between success and failure. Unpaid invoices can mount up quickly so you need to make sure your system notifies you when an account is overdue so you can chase it up. Equally paying accounts on time or early to benefit from a discount helps maintain a good relationship with your suppliers and potentially reduce expenses. Suppliers are far more willing to help out a customer who pays on time than someone who always keeps them waiting..
Reconcile Your Bank Accounts Promptly
Make sure you check your Bank Accounts regularly, you won’t remember that small thing several months later and you won’t know where you are in terms of the all important cash flow.
Check Your Financial Status Monthly
Your accounting system, or your Bookkeeper will be able to tell you exactly where you are financially at any given time. This helps you plan expenditure and manage your business more efficiently. You will also spot potential problems earlier and be able to take preventative action.
Plan for Large Annual Expenditures
Taxes and the like come around every year, they are what make our society function and we have to pay them. Suddenly finding yourself faced with a large tax bill and no funds saved for it can cripple your businesses. The Tax Authorities are remorseless in collecting your dues. By planning ahead and keeping a close eye on what you will have to pay when the time comes, it won’t be a problem.
Keep Thorough Records – Small Things Matter
Keeping accurate records of every item of income and expenditure is important. Small things add up and can soon derail a business. By being up to date and accurate with your processes you will always know where your business stands financially. You will be able to make sure that you are operating at a profit as you will have key information like your Break Even point at your fingertips.
Following these simple guidelines will keep your accounts in pristine condition and your business healthy. If you need further advice and guidance on managing your business finances get in touch to arrange a free consultation.