One way to detect any unusual transactions is by comparing your records against the bank records. This practice is known as bank reconciliation.
You reconcile your accounts by comparing record of balances and transactions to monthly bank statement. You will need to review each transaction to ensure that the amounts match perfectly. The bank statements should also show an ending account balance. Bank reconciliation is similar to balancing your checkbook. Both tasks are done for the same reason. Although you may see some slight differences, the differences must be properly explained. One good reason that your transactions may not match is when you write a check to a vendor. This will result in reducing your account balance accordingly. However, your bank will show a higher balance unless the outstanding checks hit your account.
Another reason you will see these differences is when an automatic electronic payment is paid into your account. If it appears on your account earlier than expected, discrepancies will be evident. There is no need to worry as long as the discrepancies can be accounted for.
Problems only get out of hand if accounts are not reviewed regularly. Bank reconciliation will enable you to:
Fraud cannot be easily caught unless you perform a thorough investigation by going through your records. Checks that are manipulated or duplicated is a sign of fraud. If checks are issued without authorization or there are frequent incidents of unauthorised transfers, you know that your employee is getting more than what he or she should be paid for.
There are issues that need your immediate attention, but as your business grows, you become busy taking care of other aspects of your business that you no longer have enough time at your disposal. Bank reconciliation helps you to prevent or identify problems by catching bank errors, ensuring that everything goes into your accounting system properly, keeping track of your outstanding checks, knowing how you much you have available in your bank account and more.
Business owners must see to it that accounts are reconciled at least monthly. However, if you own a high-volume business where fraud is a risk, you will need to perform bank reconciliation more than once a month. Some businesses even reconcile their bank accounts daily to prevent any unauthorised transactions.
There are many ways you can perform bank reconciliation such as creating a bank reconciliation statement. The first step is to match your transaction and compare your balance at the end period which can be daily, monthly opr quarterly. Your bank should give you access to your online account so you can view and download bank transactions regularly.
Having a bookkeeper gives small business owners peace of mind knowing that income and cash flow are well taken care of. However, discovering that your bookkeeper is stealing from you only denotes that your business has very little chance of success. The tricky part about bookkeeping is that you will never know that fraudulent transaction happens until you discover your financial records. Failing to pay close attention to your records can make you more vulnerable to employee theft. Here are signs our bookkeeper may be getting more than just his or her paycheck:
One of the things to look for when you are highly suspecting your bookkeeper of stealing from you is by checking your bookkeeping records. This is one way to detect that your bookkeeper has been manipulating your records. While occasional adjustment is considered normal, seeing a pattern without any valid explanation only shows that there is a serious problem. If books are not adding up and you do not know where problems are coming from, you will need to ask hard questions to find out about the discrepancy.
If there is one person that should be the most open within your business, it is your bookkeeper. A bookkeeper is responsible for showing you everything within the bookkeeping software at all time. It is a cause for concern once a bookkeeper is trying to hide the books from you. Since you are the business owner, there is no valid reason that you should not see the books. If a bookkeeper is habitually stealing from your company, he or she will hesitate to turn over financial information.
Businesses regardless of the size should give importance to cash flow because it is the lifeblood of every business. The reason you hired a bookkeeper is to keep your business on the right track. Most business owners can easily predict the levels of cash based on the number of customers they have. The number of invoices being sent out also gives you an idea of your funds. You can easily uncover a problem by considering this factors.
Although bookkeeping for small business is a job that one person can work on, there are times when two heads are better than one especially when you are you have a lot of bookkeeping obligations to handle. However, a bookkeeper who prefers to work on their own may have an ulterior motive, which you need to find out as this is considered a red flag.
Bookkeeping is one of the least appealing tasks for small business owners. It is often set aside to make way for other business obligations. Negligence of bookkeeping tasks has an impact on your business. Here are 5 bookkeeping errors that should be avoided whenever possible.
Errors of omission is a common mistake that is often overlooked unless its negative effects become obvious. When buying inventory or collecting payments, it is important to record transactions to prevent business activities to slip through the cracks. You will instantly throw off your books if your financial records are accurate. Aside from having difficulties measuring your profitability, filing small business taxes will also be a challenge. Make sure you note every business transaction even the ones you deem insignificant. Make it a habit to keep the receipt and organise small expenses into their proper accounts. Every business keeps a small amount of cash on hand. This is referred to as petty cash. In case you are going to buy something with petty cash, make sure that the purchase is recorded.
While cash flow and net profits have to do with expenses and income, there is still a big difference in how cash flow and net profit measure money.
Net profit enables to determine whether you are making money after paying your expenses. Your net profit is obtained when you subtract your expenses from your sales. It reflects the amount of cash your business gained during a certain period as it also measures a specific block of time.
Cash flow has to do with measuring how fast you move money. It also gives you an idea of the amount of cash coming in and going out of your business. This is shown on your cash flow statement. Your cash flow shows you the liquidity of your funds. It is important to know the difference between net profit and cash flow because when making a sale, but you do not receive the payment right away, it will only reflect the net profit you earned. Since the customer has not made a payment yet, it will result in having low available funds (cash flow).
Financial records need to be accurate at all times. Aside from keeping records and receipts, reconciling your books with your bank account is also a must. Your accounting records and bank statement should match. However, if you fail to reconcile your books, accounting errors will go unnoticed. When you reconcile your accounts regularly, it will be easy for you to spot errors of original entry. Some bookkeeping errors are a simple fix, but since they are ignored, they will snowball into a bigger problem in the end. Keep in mind that it may take six months to notice the mistakes when filing taxes. These errors could have been prevented, have you been diligent in reconciling your accounts.
If you are working with limited funds, you need to avoid overspending and plan for income and expenses according to your business budget. Using a budget helps you keep your money on track. It also saves you from any guesswork in financial planning. Refer to past bookkeeping records so you will determine future income and expenses. You will also need to stick with your budget once you have put it in place to prevent overspending.
Just because you are a small business owner does not mean that you should not hire a bookkeeper and resort to DIY bookkeeping. Your obligations become unpredictable when that it results in ignoring your bookkeeping tasks. Although managing your books demand time, it is important to find an effective way to handle this task so you can focus on running your business.
Discovering that the employees you trust for many years have been stealing from you is definitely devastating. More often than not, fraud and theft happen when you least expect it. When you have trusted people around you, there are no nagging doubts that you will fall victim to these crimes. As a business owner, being cautious is necessary. Even if you have the most trusted employees, fraud and theft can take place when you do not keep your books in check. Here’s a guide to preventing or reducing employee fraud and theft:
Some business owners implement stringent policies so fraudulent activities do not go unchecked or unpunished. For instance, Walmart does not allow employees to accept a cup of coffee or a bottle of beer from a vendor without paying for it. It sends a signal to everyone that the company is not tolerating the illegal behavior. Although not everyone can be as strict as Walmart, posting a clear code of conduct will make employees aware that misbehavior is unacceptable. The code should be given to everyone upon hire. There should also be a written acknowledgement to ensure that everyone agrees and understand it. Being the enforcer of the code, employees are also expecting you to lead by example. What is the point of following strict rules if employees see you use company property or take home merchandise?
For small business owners, wearing many hats is normal, but multitasking can be dangerous if it involves opening the mail, handling payments and deposits and filing transaction documents. These aspects of the business should not be assigned to one person only. Assigning the same task to the same person only spells trouble. There should be separate people for managing accounts payable and receivable, handling purchasing and more.
While your bookkeeper takes care of bank and credit card statements most of the time, there should be another person to reconcile bank statements. However, this person should not have the ability to modify or enter transactions in the accounting system. The modification must be restricted as this only opens the door to committing fraud. Confidential financial information must be locked up. Enforce rigorous key control and have a computer-system access. It is common for business owners to retain login information without realising that a departing employee still has it. Change your login credentials once the employee leaves.
A tell-tale sign that your employee is committing or about to commit theft or fraud is when there are changes in their behavior. Have files been misplaced? Are they giving customers excessive attention? Are they routinely working early or late when no one else is around? While you may dismiss it as working extra hours because they love their job, it is also a sign that they do not want others to see what they are doing. Even minor blips in your operation is already a red flag.
Once you feel that something does not feel or look right, it is probably not. Take time to investigate as you could be losing a big amount of cash.
We have been told time and again about the importance of bookkeeping, but we always find ourselves procrastinating because it is the job we always have a love-hate relationship with. Bookkeeping is defined as the storing, recording and retrieving of financial transactions of an organisation. It includes tasks such as sales, receipts, payments and purchases. There are several methods involved in bookkeeping, but one thing is for sure, we cannot maintain the finances without bookkeeping.
Part of operating your business is to manage customer and supplier accounts. With bookkeeping, you will be able to create a business player, track deposits and monitor payments. You will also know how to make sure that every dollar spent is intended for your business. When you update your books, you will know the financial state of your business. If you have an outstanding bill, income information, unpaid invoices or payroll estimation, you can gain access to these by simply looking at your financial statement.
Thinking about expanding or growing your business? It will not be easy without knowing your financial performance. Banks will not trust you if you have unpaid bills and delinquent accounts. If your records show that you have the ability to pay a loan, the bank will not have any second thoughts of approving your loan application. However, if your records indicate that you are running low on capital, it will be difficult for you to take out a loan.
Can you imagine operating your business without hiring a qualified person to take care of your books on a daily basis? Can you be confident that your business is on the right track if no one ensures that your checks will not bounce and you have enough capital for expansion? Will you be able to have a good night’s sleep knowing that you are falling behind your payment schedule as you do not have a bookkeeper to remind you when your payment is due? Not having up-to-date records will run you the risk of losing money. Business growth opportunities are missed and payments will not be made in a timely manner.
Bookkeeping should not be underestimated as it is an integral part of every business regardless of the size. If ever you find yourself ignoring bookkeeping, think about its repercussions. Without bookkeeping, your business will suffer from the lack of financial stability for sure.
One reason most business owners are tempted to procrastinate when it comes to dealing with bookkeeping is because the task is time-consuming. If you have a very busy day, bookkeeping has to take a backseat. Sometimes, you sacrifice quality to save time. Bookkeeping is essential to ensuring that your business runs smoothly. It does not require extended amount of time by giving your bookkeeping system an overhaul.
Manually processing your employees’ paychecks can demand a large chunk of your time. Aside from going through each employee, you will have to print the checks, approve the hours, sign and date the checks and even mail them. Automating your payroll system bypasses these processes. You will only have to focus on one task as the automated payroll system can handle all the tasks. Your job is to approve the payment and once done, the checks will be sent out immediately. Your employees will also get the checks faster.
Taking several trips to the bank can be tiring. This is why an institution that offers online banking can give you convenience as you no longer have to drive out of your way to deposit checks or withdraw funds. All you have to do is to click a few buttons so you can process your bank transactions. As a result, it will be easier for you to issue refunds and pay vendors. There is no need to worry about falling behind payments schedule. You can also get instant access to debits, credits and account balances.
Another technique that will keep your bookkeeping to a minimum is to invest in bookkeeping software so you can record your deposits and debits, track your bank transaction and create financial reports. You will no longer have to worry about creating a manual report because the software takes care of your bookkeeping tasks, making sure you have balanced and accurate books. All you need is to dedicate regular time so you can review your report.
Although most business owners make it a habit to have a separate business account, there are still small business owners who do not know the negative implication of mixing personal with business accounts. It is easy to lose track of your spending habits if you do not have a separate account for your business finances. However, this can also affect your cash flow as it is already too late for you to realise that you failed to monitor your financial activity.
Many businesses are preparing for the ongoing digital transformation regardless of the company size. If there is one goal that these businesses are trying to achieve, it is saving time and money while also increasing convenience and productivity. Invoicing is probably one of the most challenging bookkeeping tasks that bring stress to business owners. Chasing after clients and making sure that all bills are paid require multi-tasking and bookkeeping skills. For these regular tasks to be easier, moving to online invoicing is a great decision. Here is why using online invoicing software is advantageous to businesses:
Filling out a spreadsheet is time-consuming because you need to make sure that all of the essential information is properly entered. Aside from the invoice number and an itemised list of products and services, you will need to review everything to ensure that you are not making any mistakes. You will not only deal with one invoice but multiple invoices. All of these repetitive tasks can be lengthy. Switching to online invoicing software gives you a faster way to deal with your invoices. Since all client information is saved in the cloud, it is easy for you to keep track of your invoices. You will also know the client’s payment method and payment terms. You just need to log into your account and choose the client you want to invoice.
When your files are stored on your computer, access to invoices become limited unless you are in front of your computer. With online invoices, you can access information anywhere and from any device. You will only need to log into your account to find out which clients you have to start billing. You will have the ability to send invoices at your fingertips.
Another advantage of online invoicing is its automation. This feature allows you to set up recurring payments for your long-term clients. The automation spares you the headache of reminding your clients about their payment dues. The system will send follow-ups and reminders for past-due invoices. Saving time and money lets you focus on growing or expanding your business.
When your computer crashes, you will also be saying goodbye to the most important files because you failed to create a back-up. Online invoices give you peace of mind because the software is extremely secure. It safeguards files against interference and loss.
Errors are inevitable when processing involves several steps. Digital invoicing reduces errors and disputes because the total amount to be paid is calculated. It also adds the taxes to ensure that clients are billed correctly. In the event you make a mistake, errors can be corrected in minutes.
October 31 is the deadline for lodging tax returns and yet some people are still making up the boldest excuses just to delay payment.
With only less than a week left to lodge returns, the ATO expects to receive the lamest excuses for failing to lodge tax returns on time. In recent years, a company claimed that their paperwork flew out the car window when they were on their way to see the accountant. There was even an excuse that the business owner had a condition that only permits 30 minutes of work each week.
There people that will even go to a certain extent of putting the blame on other people. One late lodger claimed that the reason for the delay was because his wife burnt everything that belonged to him including his tax records. Another ludicrous reason was that the lodger’s accountant has gone to prison while he was still working on the tax returns. He could not access the computer either.
A back injury also deterred another confused Aussie from lodging tax returns in a timely fashion. The lodger failed to lodge between 2008 and 2015 due to the injury he had to endure. Others are bolder and would even use the recent death of his father as an excuse for the delayed lodgement. Although this sounds reasonable, the ATO found out that he previously used the same excuse.
The ATO has made it easier for Australians to lodge their tax returns. If they cannot lodge on time, there are still ways that the ATO can provide help. Online options and apps are also available so lodgers no longer have to leave their office for a short trip to the ATO. Data-matching technology makes it faster for everyone to fill out their information including dividends, bank interest and wages. The pre-filled information bypasses all the hard work that you need to undergo in the past. All you have to do is to double-check the information to ensure it is correct.
The ATO encourages early lodgement of tax returns because, in the event of making mistakes, errors can still be corrected before the deadline. The ATO also advised lodgers to get in touch with them should they have problems with paying their tax debt. They are willing to create a payment plan tailored to the lodger’s ability to pay. Setting up a payment plan online is also possible, but it will still depend on the lodger’s situation.
Companies around the world have highly anticipated the need for digital transformation as it is taking shape in all aspects of operation. Over the next five years, massive change will be evident. Digital Darwinism’s tight grip is proof that the pressure to transform continues to intensify. However, not all organisations can adapt fast enough.
In a new global survey conducted by Harvard Business Review Analytic Services, with 376 business leaders participating in the survey, almost all of the participants believe that the pressure to transform will only increase day after day. Although the benefits of transformation have been continuously highlighted, many businesses are still having apprehensions and are not 100% open to change. So what keeps these organisations from embracing digital transformation?
According to the survey, only 7% of business leaders are extremely open to change. Most businesses fear that their inability to change fast enough will reduce their chances for survival. About a third of respondents admitted that their organisation has not completely switched to digital technology.
The path to embracing digital transformation is not easy. This is because changes in systems, structures and processes must be taken into consideration. There is also a need for greater investment in culture change and employee support. It is also essential for IT departments to move into leading roles to keep an eye on innovation. There is also a demand for aptitudes, ways of working and new skills. Without a doubt, digital transformation does not offer one-size -fits-all solution. There is no exact timetable as to when an organisation can completely adapt.
These are the steps to preparing your organisation to digital transformation:
It is difficult to introduce change to people if they do not know its purpose and benefits. Everyone in your organisation should understand why a change is necessary for your company. Communicating your strategy will also help you prepare for the next big change. Since change is the only thing inevitable in this world, your company should develop a culture that welcomes change.
The survey revealed that 89% of respondents are already taking steps to creating new organisational structures and teams that will support business models and digital operations. The structure needs to be kept flued so it will have the ability to keep up with the dynamic nature of the digital economy.
Digital innovation should be embraced rather than feared. Digital organisation should take the transformation a step further by exploiting data in different ways. The shift will also make way for organisations to develop faster responses and use assets to the fullest.
Most legacy IT systems are rigid and slow for digital organisation. Speed is important for digital business. Aside from using new technology, organisations must also take the time to rethink IT’s role. IT should be introduced to new business models, services and products. It is expected for IT people to collaborate closely.
Automation is one of the biggest trends that made a mark in the bookkeeping industry and with its rapid growth, it is no surprise that many business owners no longer hesitate to grab hold of this new opportunity to keep their financial activities in check. Although human adoption seems to be slower as some businesses are still keeping traditional bookkeeping systems, incorporating automation into your workflow makes a huge difference. Here are three reasons to introduce automation to your bookkeeping system.
Small business owners try to reduce expenses by handling all of the tasks as much as possible. However, as the company grows, businesses find it difficult to keep up, hence a bookkeeper becomes a need. One bookkeeper cannot handle all the workload and hiring another bookkeeper means spending more money. Automating your workflow will help you standardise your process so you don’t have to worry about your financial status. The information you need from your monthly bank statements will be available for download.
Reducing repetitive tasks is one of the benefits of automating your bookkeeping system. Imagine how much time you can save from doing away with manual jobs. Automated bookkeeping allows you to generate accurate information that you can access and review at your convenience. However, it is important to remember that automated coding does not necessarily guarantee accuracy as you still need to review monthly transactions. Keep in mind that the purpose of automation is to finish a bookkeeping task the quickest way possible, but checking information to ensure there are no missing transactions is still required.
The best thing about automated bookkeeping is that you will no longer have to wait for your bookkeeper to provide you information because you can gain access to valuable information using a cloud app. You can even meet with clients monthly to discuss trends and results based on the financial reports you have gathered. As a result, you can set a plan so you can handle cash flow wisely. Keeping the books up to date will never be a problem because it only requires minimal management. With less time and attention required in keeping numbers up to date, you can surely take care of other aspects of your business.
One thing that deters some small business owners from automating bookkeeping is the fear of replacing the bookkeeping work. Since you switch from traditional to modern bookkeeping, you need to learn new processes to appreciate the benefits that automation provides. In the long run, business owners will be able to understand how automation can improve their lives.