Did you know bookkeeping is one of the oldest professions in the world? Every business needs accurate books to ensure the accounts are balanced, well-maintained, and updated. Accurate bookkeeping solutions ensure thorough financial monitoring, which leads to precise financial management. Generating reports based on finances can give an insight into oncoming challenges, risks, and growth opportunities that a business can work on and profit with.
For implementing bookkeeping solutions, certain best practices should be followed. They are:
1.Track Expenses and Revenue
Every transaction matters for businesses. The overall analysis of financial transactions is also equally important. Always keep a thorough track of outgoing and incoming transactions to be on top of your finances. Additionally, review periodic analysis reports based on current data while comparing them with past data to identify strengths, weaknesses, risks, and opportunities.
Experienced bookkeepers can track all transactions expertly and even create corresponding reports. A modern alternative to them is opting for accounting toolkits or software that act as modern bookkeeping solutions. There is little to no margin of error with accounting software. They save significant time and automate tedious manual bookkeeping processes.
2.Separate Personal and Business Funds
It is always recommended that businesses keep their personal and business funds separate. It should be a strict rule never to make personal purchases using company funds. Mixing personal and business funds can lead to cash flow issues as well as legal challenges. Auditing problems are also one of the major issues of interchanging funds.
Small businesses are more susceptible to mixed finances. Thus they should take extra precautions. An easy solution to this is creating separate bank accounts and cards for business funds.
3.Determine the Accounting Method
There are two main types of accounting – accrual accounting and cash accounting. Accrual accounting records financial transactions, both digital and cash, including expense and profit, whenever they occur, the moment they occur. Cash accounting only keeps track of when cash is exchanged.
Cash accounting is more suitable for organisations that mainly do business against cash payments. Businesses that invoice customers should opt for accrual accounting.
4.Monitor Accounts Payable and Accounts Receivable
Actively monitoring accounts payable and receivable is one of the foolproof bookkeeping solutions and a great bookkeeping best practice. Completing payments on time helps avoid late fees and avail early discounts. Managing invoices by sending bills on time helps get faster payments, and following up on pending payments is better for reaching profit goals.
5.Optimise Chart of Accounts
Businesses usually have a chart of accounts which is a list of accounts in alphabetical order that helps organise and track expenses for tax purposes. You can also use this chart of accounts as a management tool. The list will keep track of the various costs the business incurs, monitor break-even points, and even the ROI.
6.Update Bank Statements
Monitoring bank transactions every day or at least periodically can help fix mismatched accounts and transactions. Reconciling bank statements is an excellent bookkeeping solution since it can immediately bring your attention to issues before they become big. You can also identify bank errors, avoid fraud, track cash flow, and manage accounts receivables.
Generate these three statements regularly:
- Cash flow statement
- Income Statement
- Balance Sheet
7.Maintain Clean Books
Tax penalties are a major concern when it comes to bookkeeping. A golden rule is to always maintain strict control of the books. Ensure all expenses, transactions, and tax payments are accounted for. One of the key bookkeeping solutions is being thoroughly prepared by maintaining honest, clean books. Double-check all records by tallying them with bank statements and credit card statements. This helps avoid bookkeeping errors.
8.Establish An Internal Committee
Big organisations create internal committees to deal with fraud. Small businesses can establish internal authorities who will keep bookkeeping fraud in check and take action when necessary.
A best practice is to divide financial duties among a few employees to ensure no single employee has complete control over the books. If one person has complete authority over the accounts, the risk of fraud increases. You can also outsource bookkeeping resources, which research has shown is done by 37% of small businesses.
9.Advanced Tax Planning
Always maintain thorough tax records, expenses, and transactions to ensure everything is neatly organised at the time of tax filing. Accounting software makes tax planning easy by offering a bookkeeping solution that aims to organise, maintain, and ready accounts for taxation. Preplanning taxes help avoid penalties and reduce the tax burden.
Bookkeeping solutions are plenty, but understanding the right best practices is essential to ensuring precise accounts. Businesses can significantly increase their profits if accurate books are maintained. When you are aware of your financial standing, you can evaluate and implement measures that help you improve several aspects of your business, including profitability, expansion, product lines, and more.