As a small business owner, you will probably take on a lot of additional tasks, especially in the infancy of your business. Bookkeeping is usually one of the tasks you may take on yourself.
If you are not a bookkeeper by nature or by trade, it is easy to pick up bad habits as you find your way through the ins and outs of bookkeeping. If you pick up bad bookkeeping habits it can cause problems, you will do bookkeeping poorly and this could have financial implications for you or your business.
So; what should you be doing to avoid some common bookkeeping bad habits?
Updating your books on a regular basis
It sounds simple but many business owners do not update their books as regularly as they should. It can be a time consuming task but not doing this regularly can be the start of where things go wrong in a business.
If you don’t update your books regularly, it is much harder to keep track
If your books aren’t up to date, you won’t be able to see what is happening financially in your business. This could lead to missing up or downs in the business and that could cost you.
It is really important to set aside time regularly to keep on top of your books.
Keeping track of dates
As a business owner, it is vitally important to keep good track of dates, it is easy to get side tracked with ‘happenings’ within the business and miss a deadline. With your bookkeeping there are a lot of dates you should keep track of that includes: Invoicing dates, VAT submissions (especially with Making Tax Digital), chasing payments, when bills are due.
Write all dates down on a calendar or better yet set a digital calendar reminder and give yourself plenty of time to sort any additional paperwork etc
Always record small transactions
Small transactions can often be overlooked or maybe they don’t seem important enough to worry about but over a year those small transactions can add up. You should record every transaction you make, no matter how small it is.
If you don’t account for small transactions here and there, when it comes to the end of your accounting period your books will not balance and you won’t know where a portion of your income has gone. To fully understand how your business is doing financially, you need a record of every incoming and outgoing.
Keep track of every invoice or bill you send
You may be fantastic at the work you do and have an abundance of customers but any of your customers don’t pay you on time, it will affect your cash flow. If too many customers don’t pay you on time, it will affect you cash flow more than your company will cope with.
Keeping track of your invoices and the payment dates and chasing any late payers promptly will help keep money coming in when it should and help keep your cashflow constant.
Don’t be afraid to chase people that owe you money, if you have provided the service or goods ordered at the agreed price they need to pay you at the agreed time. Remember its business not personal.
Reconcile your accounts
You should reconcile your books on a regular basis, this means cross check your books with your other financial records so you can make sure everything matches. Compare your books to your bank statements, receipts, invoices, PayPal transactions etc.
If you do this regularly, any error or missing transaction is easier to find and resolve than if left you a long period of time.
Get in the habit of Looking at your financial reports regularly
Whatever kind of bookkeeping or accounting software you use, reporting functions are available. You can even run basic report from books kept on spread sheets or there are your bank statements etc. but there is no point in having these functions and availability if you don’t look at them regularly.
Set time aside on a regular basis to spend time looking at your reports. There are a variety of reports available for your books and each has different information that will be useful to you to help you make decisions about your business.
You should examine the same reports over a period of time, this will help you evaluate how your business is growing or not or how profitability is improving or not for example.
Learn about key bookkeeping concepts
Bookkeeping is likely not your trade or your passion but if you are managing the bookkeeping yourself, it is vital to have a basic understanding of common terms, formulas, and reports. If you don’t understand these things, you are likely to make errors that could be costly.
It would be a good idea to get to know some accounting basics and learn common accounting terms at the very least. If you understand the parts of your accounting, you will be able to manage your books much more effectively.
Get someone else to do your bookkeeping – Like a bookkeeper!
If this just isn’t for you or you just don’t have time, it really is time to consider hiring a bookkeeper. Outsourcing your bookkeeping can be cost effective and very beneficial to even the smallest business. That way, you can focus on your business while your bookkeeper can focus on your books.