Managing personal finances requires minimal effort. Most people have a savings and checking account, a few investments, a retirement account, a few monthly payments, and a file to record the receipts for tax records. That’s manageable for an individual in many cases. But keeping a whole business in check is a bit more daunting, and that’s why a professional should be involved with your bookkeeping and finances, be them on staff or consulting. Most bookkeeping consultants advise every business, regardless of size, to follow the listed bookkeeping best practices.
1. Utilize Accounting Software to Record Expenses
Business owners should maintain a thorough record of all their business expenses. You should record and save your receipts daily or weekly with the help of a reliable accounting software system to minimize the burden of daily bookkeeping tasks. If you don’t what sort of software you should or can be using, then various bookkeeping services should have some recommendations such as our example company: https://myrqb.com/. They help evaluate the software system and technology’s ability to scale with your business as it expands.
2. Keep Your Business and Personal Finances Separate
Ensure you or your workers aren’t purchasing items for personal use using business funds. Allocating your funds minimizes cash flow issues and auditing and tax filing complications. Small business owners are more likely to handle all their payments and purchases themselves. Even if you’re the only person accessing the funds, ensure that you always separate your business and personal finances. The problems mixing your finances cause aren’t worth the trouble.
3. Establish the Accounting Method to Use
There are two primary systems of accounting business owners can use, accrual accounting and cash basis accounting. The accrual method employs the matching principle to record expenses and revenues for the duration they occur. Cash accounting records the transactions when cash changes hands and works well for businesses dealing with cash payments only. A modified cash basis is another acceptable option and allows you to send out invoices to clients and record your bills in accounts payable. Determine the appropriate system for your business before conducting the first transaction.
4. Track Employee Time to Understand Your Profitability
Service businesses can enter information on the timesheet through process automation. Payroll automation and time-tracking capture employee time and project-related costs, and business owners can easily feed the information into their bookkeeping system. Process automation enables you to track the sales representatives, add custom fields to a work form, and assess profitability by the team, industry, marketing, and sales representative campaign.
5. Optimize the Chart of Accounts
Most businesses have a simple chart of accounts that enables them to track expenses for compliance and tax purposes. The best practice is to utilize your chart of accounts as the basis of a management accounting instrument to assist you in keeping track of your return on investment for expenses, your break-even point, and your client acquisition costs. Grouping your marketing and sales accounts assists you in separating administrative and general expenses aside from tracking costs.
6. Establish Internal Controls
It would help if you established internal controls in your business procedures and policies to minimize the risk of fraud. The process includes dual control for processes involving receiving or making payments. For instance, you should have one worker reconcile the bank account, another write the check, and a third sign the payment authorization. Regarding internal controls, the individual who opens the mail should differ from those responsible for accounting functions.
Bookkeeping is essential for most businesses and lets you record financial transactions into organized accounts. Updating your transaction records lets you generate accurate financial reports to measure business performance. Follow the listed best practices for your bookkeeping operations.
