6 Tips to help keep your books balanced
Accounting is essential for every business. However, it often gets lost in the shuffle for business owners trying to manage and maintain day-to-day operations. Accounting should not be considered an afterthought, as accounting mistakes can lead to uncertainty and hinder growth.
Balanced books can be used to forecast the future or close on past periods providing a clear picture of the company's health and highlighting potential problems to be addressed.
Monitor Receivables Accounts
Everyone loves to get paid. It's the best part about running a business. Unfortunately, it's not so easy to manage the company's revenue. For example, a company issues an invoice when purchasing a product or service; this creates a receivable. This invoice shows the customer owes money and has an outstanding balance. When the customer pays, the amount is applied to the balance due.
It sounds so easy, right? However, it can be challenging to keep track of all the invoices issued by companies when it's a significant number. In addition, it can be challenging to reconcile customer invoice payments after the fact, leading to logistical problems that could leave room for error.
Keeping tabs on the receivables, recording transactions, and even considering switching to a more automated process is a significant first step to keeping the business books balanced.
Keep track of receipts for expenses
Looking at your bank statement and seeing a charge but no evidence of what the amount was for is no way to track expenses.
It is possible to avoid this by storing receipts for all purchases and logging them. Although it may seem like a lot, it is definitely worth the effort. It will be much easier to reconcile and report them if you use cloud-based software.
Not only must major business expenses be tracked, but all expenses such as travel, entertainment/meal, and gifts for clients should also be properly logged.
Detailed expense reports can make a big difference in tax time. Ensure your employees know the importance of keeping receipts, so you have accurate records.
Recognizing Cash Expenses
It is crucial to keep track of the cash coming into and going out of your business to have accurate books for tax season. However, it can be challenging to keep track of money coming in and out of a company that accepts credit cards and cash.
This will allow your company to understand its overall profitability better. Neglected cash income and expenses can cause inaccurate cash flow management reports or future forecasting.
Separate personal and business
For some small business owners, it's easier to mix up personal and business funds. However, it's possible to dip into private funds to help a new company; companies need to have their bank accounts.
This allows bookkeepers and accountants to keep track of money spent. In addition, this allows financial accounts to be distinguished from personal and business accounts. Business accounts should only be used to pay business expenses and income for new or growing companies.
Make a detailed chart of your accounts
To get a complete picture of a company, you need multiple accounts. The following reports are essential for businesses to keep track of:
Accounts Receivables
Accounts Payable
Sales
Purchases
Payroll expenses
Owners' Equity
Retained earnings
These are only a guideline, but it's a good rule of thumb to avoid other accounts that turn into a place to stash random transactions, as this will lead to clutter and a lack of organization. In addition, businesses can further narrow down transaction categories by splitting their main accounts into sub-accounts.
Maintain good communication with accountants
It doesn't matter if a company works with an accountant in person or an outsourced accounting team; it is essential to keep the lines of communication open. A company should consider an accountant a part of its team. They will help keep you informed about transactions, future goals, and other matters that affect the business.
While your controller and outsourced accounting team will handle the majority of these tasks for you, it's vital to understand what can be done to keep your business running smoothly. If you have questions regarding anything discussed in this article, feel free to contact your controller to learn more.
