There are many small business owners who excel at creating impressive products and services, but may need extra help with basic bookkeeping. Business owners need to have a clear financial picture of what is going on with their business so cash flow problems are prevented. Do you already have an idea what your accounts receivable look like? Do you always have delayed bills payment? Although you have a bookkeeper to read financial reports, it is still your obligation to understand the figures so you can determine if your business is still on the right track. Keep in mind that your financial records provide you an idea of the health of your business. These records must be kept for six years.
• Sale ledger confirming the receipts of cash and cash owed by debtor to the business;
• Cash book or statement where money spent and received are entered;
• Purchase ledger where business-related information is recorded;
• Wage and salary ledger confirming all salary and National Insurance expenses;
• Details of GST charges for businesses which are GST registered.
Efficiency is required for bookkeeping endeavors to be successful. You become more involved in bookkeeping once your business becomes larger and more complex. While there are some strategies that may help you survive the concrete jungle of bookkeeping, unable to understand bookkeeping basics will render advanced techniques useless.
It is also imperative that you learn how bookkeeping works before you jump on to the more advanced approaches that will make day-to-day transactions a breeze. As they say, you have to walk before you run and the same is true with managing a small business. As you employ additional employees for your business, you need to make sure that everything is put in proper perspective.
Do you know how some entrepreneurs end up losing their business? Poor financial management is a serious issue that needs to be taken seriously. Accounting fraud is a serious offense and should not be ignored. If you do not understand how the system works, your business will have difficulties moving forward. Bookkeeping may be a simple task that some small business owners often overlook, but it has a serious impact on your business.
When recording your expenses, your bookkeeper should have two journals, one for cash receipts and the other for cash disbursements. A business owner should also follow best practices for collecting payment. It is important for bookkeepers and business owners to track accounts receivable. This refers to the money due from customers. It needs to be kept up to date as this is also critical to your business.
The products you have in stock are also important and they need to be accounted for and tracked. Make sure the figures in your books are periodically tested through inventory. Aside from accounts receivable, you must also give importance to accounts payable. Timely payments are encouraged so your business can qualify for discounts. There are other aspects of your business that need attention such as purchases, payroll expenses, loans payable, owner’s equity and others.
Spending is essential in every business, but the money you spend must be closely monitored so you can determine if you are overspending. Mindless spending habits can have an effect on your business especially if you do not keep track of minor expenses. You might think that small expenses do not have an effect on your business, but once they are not liquidated, you will begin to wonder why there are some unnecessary expenses.
Your unresolved obligations just keep piling up
Have you ever found yourself depleting your funds? Have you tried checking a list of obligations that remain unresolved? If this is the case, you need to re-evaluate your spending habits as something is just not right. Is your business headed in the wrong direction? It might not be going where you expect it to be and if you do not pay close attention to the way you are handling your expenses, the people you are doing business with will also lose their trust in you. Before payment obligations pile up, make sure they are settled.
You cannot handle petty cash
Do you have unbalanced accounts at the end of each week? You may need to review them if you cannot clearly identify where the problem lies. Unable to reconcile your petty cash is a serious problem that needs to be tackled by your bookkeeper or accountant. Budgeting is important because it keeps your finances intact. If you have no idea where your petty cash is spent on, you will have trouble keeping track of the amount of money you have. Soon, you will discover that one of the contributing factors for the failure of your business is due to overspending or taking money out of your budget without liquidating them.
Failing to pay bills in a timely manner
While overlooking some payment schedules may sometimes happen, habitually forgetting your payment obligations is a different story. Delayed payments can spell trouble if you do not do something about it. Make sure you prioritize expenses by setting aside money for paying your bills. The money you set aside is exclusive for bills payment. Make tax payment your top priority and if you need to pay for your credit card bills, you should also keep a budget so money becomes available when you need it.
You spend more than you earn
You are less likely to succeed in budgeting if you are spending more than you earn. As a business owner, you are required to spend as part of the growth of business, but if your expenses seem to create a serious impact on your business as you do not know where your money is going, it is a clear sign of overspending.
Failing to keep an eye on your expenses can increase the likelihood of losing your business. Spending money on unnecessary items and delayed payments can seriously hurt your business if you do not do something to improve your budgeting. A bookkeeper can help you spend wisely so you can free yourself of financial worries.
Cash flow is the heart and soul of the financial aspect of your business. Without it, any activity that requires the use of cash will not prosper. Business owners use cash for paying suppliers, employees and others who are serving your business. If cash flow is handled properly, you can generate an impressive return on your investment. However, this will only be possible if you are going to keep an eye on your cash flow. While there are still aspects you need to keep an eye on, your cash flow must be closely monitored because when left unchecked, it can be one of the reasons for a failed business.
How will you know where your money goes if you do not track your expenses? Money movements must be tracked for your business to survive. Make sure you track the invoices issued and paid to your clients, the invoices received and paid and the taxes withheld. Use bookkeeping software to ensure that your information is updated. Aside from making the process easier, you can also stay on track with the movement of your money.
You can avoid cash flow issues if you consider submitting a project proposal. This way, your payment conditions will be clear. You should also see to it that the invoice you send has clear payment terms. You can also increase the chances of getting your invoices paid if you use magic words: “please” and “thank you”.
If there are bad debts you need to follow up on, remind them in a friendly manner. The email should outline the details of the payment and schedule follow-ups including phone calls and email messages. Some software allows you to enable late payment reminders so you can regularly follow up on bad debts.
It is also a good habit to schedule the payment of your bills on or before the due date. This is a good practice that professional organisations should follow because it keeps your cash flow in check. Being unmindful of your payment due date can be a problem in the end if the bills start to pile up.
Cash flow forecast is important as this allows you to determine if you still have enough cash to spend. If you do not know how a cash flow forecast works, you can ask your accountant or bookkeeper to create one for you. When you forecast cash flow and compare actual figures, you will be able to identify the areas of your business that require immediate attention. If there is a discrepancy between the two, make sure you examine further so you will know if there are uncontrollable spending going on. It is easy to identify which areas of your business you should focus on if you have a cash flow forecast. Many young businesses face cash flow problems and when these are not addressed immediately, your business can take a nose dive as it will not survive considering the expenses associated with managing a business.
Deadlines are important to business owners especially when it comes to making payments. Aside from filing dates, both business owners and bookkeepers must also take note of tax deadlines. There are lots of problems associated with delayed payments and they can certainly have a serious impact on your business.
Annual Withholding Declarations: Employees can claim entitlement once they give their withholding declaration. After they claim entitlement, the amount being withheld from their wages are reduced. It is important that an employee’s information is updated once there are changes in their address or employment status. As a business owner, the declaration can also provide sufficient information about the changes made. The deadline for tax declaration is on August 14th. Business owners must make changes to the payments of employees from the very first payment upon receiving the declaration.
Pay As You Go Withholding: PAYG Withholding is the employee’s summary of payments. These payments are based on a specified period of time. Once your business makes a payment, the summary will show that amount withheld. If your business did not withhold any payments, it is necessary that the statement is presented. The deadline for PAYG withholding is 28 days after the end of the quarter or 21 days after the end of the month. The deadline will also depend on the type of system you have chosen.
Business Activity Statements: Tax obligations including securing business activity statements must be fulfilled by all Australian businesses. Every month, businesses must make payments and the deadline is 21 days after the last day of the month. For business owners who choose to pay on a quarterly basis, the payment must be lodged by the 28th day after the quarter. Payments are not due until February for the December quarter.
Superannuation: Superannuation includes the funds that will be available upon retirement. As an employer, it is your responsibility to set aside a portion of your employees’ wages as this will serve as a superannuation fund. The employees also have a choice to put additional funds into the account. Employers need to pay superannuation fees regularly. Making a payment can either be made on a quarterly or monthly basis. Superannuation payment must be lodged 28 days after the established period of time.
Payment Summaries: The summaries of payment provide the payment details made to employees. This type of payments that falls under this category is the payment an employer made under a voluntary agreement and labour-hire arrangement. The payment must be made on July 14th.
A bookkeeper is vital to every business because they know where the business stands financially. Business owners need a bookkeeper for a number of reasons such as keeping track of finances, but they must also understand their business so they will know the essential documents that a bookkeeper must regularly present. Some of the essential information that your bookkeeper should know are the profitable client, the most profitable service or product line and the cash flow. Your bookkeeper may be rushing to carry out a task before the end of the week and may not have the time to discuss some details with you. Before you let your bookkeeper off the hook, you need to set aside at least 30 minutes so they can give you an update of your financial standing.
• Weekly Cash Flow Analysis – Although there are some aspects of bookkeeping that accounting software can take care of, a bookkeeper needs to deal with cash flow analysis and present financial statements to business owners in vivid details. This way, it will be easy for a business owner to understand where the business is going. Detailed cash flow projections will also help you determine payments for BAS and Superannuation.
• Weekly Bank Reconciliation – At the end of the week, your bookkeeper should also present your reports, which are related to your bank transactions. Make sure the bookkeeper presents up to date reports or it will be meaningless. You can determine if there are fraudulent transactions if you keep a weekly bank record. Your bookkeeper should be able to record all of the bank transactions that have taken place on a weekly basis. Aside from bank reconciliations, your bookkeeper should also have a weekly report for credit card reconciliations.
• Weekly Revenue and Margin Analysis – A detailed net profit analysis is important so you can easily track your revenue and gross margin. Your bookkeeper should show you a weekly Work in Progress report.
Knowing what is going on with your business on a regular basis will help you identify some measures you need to take in case your business heads in the wrong direction. If you already have an idea that the financial aspect of your business is doing well, you will no longer have to worry about taking some drastic measures. You can immediately put a stop to fraudulent transactions if you make it a habit to check reports on a weekly basis or whenever necessary.
Although it is the bookkeeper’s job to keep financial reports in check, business owners must also take part in ensuring that the reports are correct. A business owner must understand the details that a bookkeeper providers. If you have a nagging suspicion that something is wrong with the reports, you should ask your bookkeeper for an explanation so you will know if you need to reassess your business. It is easy to lose track of your finances if you are attending to other business concerns, but bookkeeping should never take a backseat if you do not want to join entrepreneurs whose business has failed due to poor bookkeeping habits.
Bookkeeping is critical to your business and when your financial records are not handled properly, expect your business to take a turn for the worse. Perhaps you have already heard of business owners clamoring about their financial records because of paying less attention to this essential business aspect. A bookkeeper should not be the only person fully responsible for understanding your finances because as a business owner, you should also be involved.
Even in searching for a reliable bookkeeper, choosing someone who is experienced in the field is a must. You just cannot put your trust in an inexperienced bookkeeper and allow your business to fail. This is going to be unacceptable because you know for a fact that you could have been in control of the situation if only you had been keen on hiring a bookkeeper.
Professional bookkeepers are already acquainted with a wide range of tasks that their job entails. These are the people who are a valuable part of your business. Unfortunately, small businesses deem bookkeeper as an additional expense and to save money, business owners would rather rely on DIY bookkeeping. This cost-cutting practice can do more harm than good and instead of saving money, businesses can lose a great investment because the damage cannot be undone if bad bookkeeping practices are discovered a little too late.
You may appoint a relative to take care of your bookkeeping task hoping that you will get the same result as getting a professional bookkeeper, but when you review the financial record, you know that something is not right. There is no undo button once mistakes are committed and the sad part of bad bookkeeping is that you are often the last to know about your finances.
When a set of books are incorrectly completed, this is going to result in bookkeeping catastrophe. If you used to take cashflow for granted, later on, you will realise how important it is in managing your business. Aside from lack of adequate bookkeeping systems, business owners are also faced with problems with financial record-keeping. There are plenty of problems associated with bad bookkeeping such as missing out on identifying the money you owe to the suppliers and the bills that remain unpaid. When bookkeeping is not properly done, businesses can collapse. Aside from the inability to keep track of your finances, you will also have trouble checking your cash flow. You will never know whether or not you have enough cash.
The reason every business owner needs to hire an experienced bookkeeper is to make sure that the performance of your business is closely monitored. It is easy to overlook the most essential detail when your bookkeeper does not have substantial experience. Inexperienced bookkeepers will also have trouble understanding financial management’s importance in a small business and the critical role of accuracy when it comes to recording bookkeeping data. Not hiring a reliable bookkeeper is a costly mistake. Once the essential details are not recorded, it can bring devastating effects to your business that may be difficult to correct.
Keeping track of the financial activity of your business is a critical role every bookkeeper should perform. You may have surely heard of horror stories about bookkeeping and accounting fraud, but due to its prevalence, it becomes a regular habit that business owners should get used to. However, just because fraud occurs regularly does not necessarily mean you should not do something to take care of your business.
Misfiled Paperwork: If you have trouble finding business records such as payroll records, deposit slips and supplier correspondence, then you need to ask your bookkeeper to produce them. While it can be easily misconstrued for sloppy filing, you still need to make sure that you are regularly keeping track of your financial transactions. Watch out for government letters about delinquent bills because in this case, your bookkeeper has a lot of explaining to do.
Inconsistent Financial Statement: When there are omissions and misstatement of financial data, it is a clear sign of fraud. While mistakes in data entry can be committed from time to time, when it is done deliberately, it becomes a fraudulent activity especially if it is done on purpose. As a business owner, it is important you check your financial statement. With that being said, make sure you learn how to read the statement.
Incorrect Procedures: Bookkeepers need to follow correct payroll guidelines and procedures and if they are reluctant to adopt new processes it is necessary that you insist they should strictly follow new procedures. The payroll and financial records for previous years must also be investigated.
Create a reimbursement and expense policy. Instead of billing your credit cards directly to your company, bill them to your employees. You should also have an expense report for each employee and require them to turn in original receipts. Do not forget to set a daily limit so you will be able to control the amount that your employees spend. With this policy, you will be able to monitor expenses that are eligible for reimbursement.
Review financial records. One way you can verify that sales are recorded is by keeping a financial record. Make sure the records are complete and if you find out that the customer records are incomplete, you should ask the person in charge of collecting money from customers. There should be checks and balances implemented so debt previously written off are properly recorded.
Avoid sharing passwords. It is common for most people to share passwords especially when separate user accounts are not available. For instance, if an employee wants to make changes to the account, there is no other option but to share passwords. As a result, you have lost control of permission security and unable to determine who made the changes to the account. It is important that Administrator password is controlled by senior management to prevent fraud.
Create a separate account for petty cash: You can easily monitor expenses if you have a petty cash account. This way, the expenses are properly recorded and tracked in a timely manner.
Without a doubt, January is one of the busiest months for most businesses because it is the time where recreating financial records is essential. Keeping abreast of your financial records provides you an idea where your business is headed. However, bookkeeping can be really stressful once your mind gets cluttered up with loads of financial information. Bookkeeping does not have to be a daunting task if you can properly manage your records.
1. Create a system – For sure, you have already identified your business’ areas for improvement and this year, you need to improve your system so you can keep up with the demands of your business. If you continue to follow ineffective practices, your business processes will remain stagnant. Technological advancements can help you speed up the bookkeeping process. For instance, software programs that enter the information quicker than the old process allows you to attend to other business transactions. These software programs also make record-keeping more practical because you get to store essential information in your data base so you can easily retrieve them in the future. You can also closely track your payments for taxes using the software.
2. Capture data in real time – It might be easy to miss out on capturing unnecessary details such as using your personal card for your business because you forgot to bring your business credit card. However, when using your personal card for business transactions becomes a habit, the expenses can add up causing you to be entangled in a diabolical mess. These details, when overlooked can cause you to pay more income tax than you should. See to it that you record or capture every detail of your transactions so you will know where your business is going.
3. Have a separate folder for your business expenses – It is easy to include all of your receipts and invoices in one folder, but if you are going to need them for keeping track of your financial activities, you will realise that everything is mixed up. Instead of placing all receipts in one folder, have a separate folder for your expenses so you can easily retrieve them. Not only will you speed up the process of generating your invoices, but you will also save time as the documents you need are already available.
4. Update your data base regularly – Aside from setting up a system, you should also update your data base on a regular basis so you will know if there is any duplicate entry. However, you should take note that updating your data base does not have to happen every day. It will be greatly dependent on your business needs.
If you always dread bookkeeping, ensuring that your financial records are organised can help you reduce the stress that the process entails. When you do it regularly, you will begin to notice that you save time and attend to other obligations. The next time you recreate financial records, make sure you keep essential information handy.
As a business owner, it is important that you have the right record keeping system so your business can run efficiently. Aside from legal requirements, you should also meet the basic record keeping requirements. There is a plethora of benefits you can reap from complying with these requirements such as strengthening your relationship with staff and customers.
Based on specific laws, there are requirements that businesses secure before setting up a record keeping system. For instance, using an electronic record keeping system requires business owners to produce the record’s hard copy once the Australian Securities and Investments Commission (ASIC) and Australian Taxation Office (ATO) request it.
ASIC also has a roadmap-financial reporting which allows business owner to break down reporting requirements based on their business type. It is also recommended that business owners keep record for 5 years. However, there are records that should be kept for 7 years such as:
• employee records
• company’s financial records
• all records of capital gains and fringe benefits.
• bank accounts including deposit books, bank statements and cheque books.
• financial accounting program or cash book used for recording cash payments and receipts.
• employment records including benefits, remuneration, hours of work, overtime, leave superannuation benefits, termination of employment, type of employment, personal contact of employee, employment details and employee’s personal details.
• sales records including receipt books, invoice books, cash register tapes, credit card documentation, credit notes for goods returned and goods used.
• Work, health and safety (WHS) records such as chemical storage records, first aid incident register, workplace assessments, Material Safety Data Sheets (MSDS), risk register and management plan, workplace incidents and names of key WHS people.
End of financial year records are also very important and to meet legal requirements, a business owner needs to minimise tax bill or maximise tax return at the end of the financial year.
• a list of debtors and creditors for the entire financial year
• depreciation details such as depreciation schedule, tax invoices, purchase agreements, installation cost and the cost of transporting the items to your business
• stock on hand details form the beginning and end of the financial year
• expense records including receipts, cash register tapes, cheque butts, copies of statements, credit card documentation, payment details and log books
• agreements such as loan agreement, rental agreements, lease agreements, franchise agreements, sale and lease back agreements, trading agreements with suppliers and legal documentation
• basic accounting records such as accounts receivable, accounts payable and stock records
• staff and wages details including employment contracts, tax deducted, sick pay, holiday pay, fringe benefits , superannuation
• other documents such as contracts with telephone companies, deposits with utilities, business name registration certificate and capital gains records.
Keeping these records for 5 to 7 years is also one of the best practices to follow. Aside from the aforementioned records, certificates and licenses are also important. Make sure you also keep customer records, customer complaints, details of any disputes, employee resumes and job applications, insurance policies, quotes given and won and advertising campaigns and success details.
Keeping meticulous records for the income and expenditure of your business requires a person who is considered an expert at number crunching. Every client has experienced vacillating between choosing an accountant and bookkeeper for their needs especially when there are requirements that need to be complied with. Even when you have already hired someone to assist you with your day-to-day transactions, it can be pretty hard to know exactly where to draw the line. While there are a number of options for you to choose from, the process of choosing is not that easy.
Bookkeeping has to do with daily financial transactions including sales, payments, receipts and purchases. A general ledger plays an important role in recording these items, but many small businesses also turn to bookkeeping software for keeping track of various transactions including entries, debits and credits. Bookkeeping involves generating data about the organisation’s activity.
Although bookkeepers do not analyse the financial transactions, they still play a vital role to ensure the business will run efficiently. For instance, recording receipts and payments ensure that correct amounts are paid and received in a timely manner. There are also prescribed procedures that bookkeepers need to follow. They need to see to it that transactions are recorded on a daily basis.
On the other hand, accounting turns data into information. The primary role of an accountant is to verify the data entered, and once data have been verified, they will be used for generating reports, performing audits, analysing the account and preparing financial records. An accountant also ensures that the financial information can be used for forecasts, opportunity for growth, business trends and many others.
The financial data are interpreted as a way of evaluating the business’ efficiency. The accountant will also be the one to decide if there is still a variety of areas and tasks that need work such as management accounting, financial accounting, auditing and financial services.
• Financial statement is part of the accounting process, but not the bookkeeping process.
• The process cannot proceed to accounting without taking the first step, which is bookkeeping.
• Bookkeeping does not have the power to disclose correct financial position as it is an accounting job. Accountants help clients see the true and fair view of the business’ financial status and profitability.
• Bookkeeping involves keeping proper records of financial transactions while accounting measures, evaluates, groups, summarises and records transactions.
Bookkeeping and accounting work hand in hand. One cannot function without the other, hence both can be considered inseparable. Bookkeeping is the base for accounting and an important part of the entire process. Every business owner needs both an accountant and bookkeeper to keep the business on its feet.