Accurate and healthy accounting is vital for all businesses but often falls by the wayside for business owners, especially if they are juggling other responsibilities of managing and maintaining day-to-day operations. However, accounting should never be treated as an afterthought because it can lead to mistakes for the company. When accounting mistakes occur, it can hinder growth and cause uncertainty in the company's future success.
Keeping balanced books assists in many things, such as forecasting the future and closing on past periods. It provides a clear picture of the health of a company and brings potential issues to the front so that they can be avoided. We've brought together these tips to help business owners and CEOs keep the books balanced so that they can be positioned for growth and success.
Monitor Accounts Receivables
Everybody loves getting paid, it's the most exciting part of running a business! But, managing the rate at which a company is getting paid is not as fun. When a good is sold or a service is performed, a company issues an invoice and logs a receivable. It shows that a customer owes money and at that time, has an outstanding balance. When the customer pays, the amount is applied to that outstanding invoice.
It sounds so simple, right? Well, it is. However, when there is a higher volume of invoices being issued by a company, it can become a challenge to keep track of them all. Leaving customer invoice payments to be reconciled at a later date can be a logistical nightmare that can leave room for error.
Keeping tabs on the receivables, recording transactions, and even considering switching to a more automated process is a great first step to keeping the business books balanced.
Keep Track of Expense Receipts
Taking a look at a bank statement and seeing a $100 charge but no evidence of what the charge is for is no good way to track expenses. Running into situations like this can bring on a wide range of tax, accounting, and cash flow issues.
An easy way to prevent this from happening is by saving receipts from all purchases made and logging them. It may seem like a lot of work, but it's certainly worth it. If you log them in cloud-based software, it will make reconciling and reporting them much easier as well.
And not only do major business expenses have to be tracked, but everything down to any travel expenses, entertainment/meal expenses, and gifts for clients have to be logged and recorded properly.
Thorough expense reports can make all of the difference during tax time and be sure to stress the importance of keeping receipts to employees so that there will be accurate records moving forward.
Recording Cash Expenses
To have accurate books during tax season, keeping tabs on the petty cash coming in and out of the business is important. If a business accepts cash, credit, and digital payment forms, it can be easy to lose track of the cash coming in and going on for various expenses.
This will give a business a more accurate sense of the overall profitability for the year because neglected cash income and expenses can lead to inaccuracy in cash flow management reports and future forecasting.
Separate Personal and Business
For small and medium-sized businesses, it can be easy for owners to mix up personal and business funds. While sometimes dipping into personal funds to support a new business does no harm, it is crucial for a business to have its own business bank account.
With this, there is a clear log of how money is being spent and brought in for bookkeepers and accountants to make sense of. It allows finances to be properly distinguished between personal and business accounts. Owners of new and growing businesses should be especially mindful of the fact that business accounts are to be used for business-related income and expenses only.
Have A Thorough Chart of Accounts
For the most well-rounded picture of a business, there must be multiple accounts that provide a home for all financial transactions. Some of the most important accounts for a business to track are:
- Accounts Receivable
- Accounts Payable
- Payroll Expenses
- Owners' Equity
- Retained Earnings
These are just a starting point, but a good rule of thumb is to avoid "other" accounts that turn into a place to stash random transactions. It will create clutter and cause a lack of organization. To be even more detail-oriented, businesses can go further and split main accounts into sub-accounts to really narrow in on certain transaction categories.
Hire A Professional Accounting Staff
The accounting world has many service types to cater to all kinds of businesses. Across all industries and sizes, there is an accountant out there that suits any business.
Whether it's hiring an in-person bookkeeper or accountant, hiring a local service provider, or completely outsourcing to a virtual service provider, hiring a professional takes much of the burden off of business owners when it comes to keeping the books balanced.
There are many benefits that come along with this and it gives business owners and CEOs the ability to focus on other areas of a business and growth.
Keep Good Communication With Accountants
Whether a business goes with an in-person accountant or a virtual service provider, keeping lines of communication is imperative. An accountant should be considered part of the team at a company.
Keeping them in the loop with transactions, business goals, and future growth plans will help keep a level of accuracy in the books - not to mention keeping them up to date with all financial records and reports.
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