Small business owners will have various motivations for choosing to start a business. The opportunity to manage the books generally isn’t one of them.
And yet, adhering to best practices in bookkeeping is essential to getting a business off the ground and helping it thrive for the long haul. Maintaining timely, accurate books will reveal in real time, how your small business is performing along with possible areas for improvement.
With that in mind, here are five quick tips on how to do bookkeeping the right way:
1. Work on a schedule.
There are some bookkeeping tasks you should be completing daily or at least weekly, such as inputting business transactions as they occur, into your accounting software. Each month, you should be taking steps such as reconciling bank and credit card accounts as well as creating and reviewing key financial reports. You should also be performing certain tasks quarterly and annually, for example prepare and file quarterly VAT returns and don’t forget these now need to be submitted digitally in line with Making Tax Digital (MTD). Annually complete year end and close, if you’ve been closing each month, the end of year close should be easy.
Keeping track of all this isn’t straighforward, so make sure you have a system in place to help you stick to your schedule.
2. Leverage the cloud.
In the early 2000s, (say, 2005 or so) only large enterprises could afford cutting-edge business technology. However, there is now a wide range of cloud-based technology tools that simplify bookkeeping and related tasks which are within the financial reach of small businesses.
At Cloudsource Solutions, we use Xero’s beautiful accounting software and regularly recommend it to perspective clients. Other cloud favourites of ours are, Receipt Bank (purchase & expense processing), Debtor Daddy (automated debt collecting) and Fathom (management reporting and financial analysis) among others. All of these tools help make bookkeeping a little less painful.
3. Know your reports.
Three types of financial reports are critical to keeping you connected to what’s going on in your business and helping you maximise growth over time: profit and loss, balance sheets, and cash-flow. Here’s an ‘in a nutshell’ description of each:
- The profit and loss tells you whether you’re making money or losing it
- The balance sheet shows what your business owns (assets and capital) and owes (liabilities)
- The cash-flow statement reveals where your business used its cash, as well as how much cash your business has at its disposal.
Be sure to run and review all three of these statements at least once a month.
Many businesses have the same questions they want answered; Where does your business appear to be headed in the short and long-term? What’s the outlook for profitability, expenses, cash flow and capital needs? A business forecast can provide the answers.
A forecast should consider all your expenses and expected revenues, covering both best and worst-case scenarios. It’s a valuable resource to share with potential investors, in case that’s part of your game plan. More importantly, it provides projections that will help you set realistic goals and make smarter day-to-day managerial decisions.
5. Outsource your bookkeeping.
At Cloudsource, we don’t really like the word ‘Outsource’ we prefer ‘partner’ as that’s what we do, we become your cloud based bookkeeping partner, delivering remote bookkeeping services. We may be a little biased on this one, but there’s no denying that most small-business owners are spread pretty thin. Having the time and skills to handle bookkeeping isn’t always realistic. If you’re not ready to hire a full-time resource for the task, then “partnering” might be your best solution.
A skilled bookkeeping resource can confirm your business is following best practices throughout the year. They can keep your books clean (and audit-ready) while also helping you interpret the numbers and offering guidance on forecasting and financial planning. Supplying data to your accountants on time at end of year is another bonus.
Whether you decide to outsource it or keep it in-house, making bookkeeping a priority just makes good sense. In fact, it could be the difference between the success or failure of your business.
You can see more on our services, here or feel free to get in touch to speak to our friendly team about how we can help you and your business.