Best Bookkeeping Practices
Bookkeeping is one of the oldest professions in the world. Every small business needs efficient accountants to thrive in this highly competitive marketplace. With a great bookkeeper, you can avoid several payment issues and use your financial reserves efficiently to grow your company.
If you want to be successful, your books must be kept in order, regardless of how new or established your business is. Because most small business owners are unfamiliar with basic bookkeeping practices, outsourced bookkeeping services may be the best option to ensure effective management of your finances.
However, to keep an eye on your bottom line, whether you want to handle it yourself or outsource, it's critical to comprehend some of the bookkeeping best practices.
Top 10 Best Bookkeeping Practices Every Business Should Adopt
Below are ten best bookkeeping practices of designed to keep your accounts in order and reduce the risk of fraud in your business.
1. Keeping Your Funds Separate
Keep your personal and business finances separate to prevent cash flow problems and auditing difficulties. This means that neither you nor your staff should ever make a personal purchase with company funds or a business transaction with private funds.
When you own a small business that manages all the purchases and payments, there is a high chance you might mix your finances. Therefore, you may want the respective funds to be kept apart even if you're the only one handling them.
Open separate bank accounts and credit cards for your business to ensure that you always have a clear understanding of its financial situation and make tax time much more superficial.
2. Decide Your Accounting Method
You can use either cash basis or accrual accounting as your company's traditional accounting method. However, cash accounting is typically only for companies that accept cash payments for goods and services. This is because cash accounting records transactions at the time cash changes hands.
Regardless of when payments are made or received, the accrual method applies the matching principle to record revenues and expenses in the period they are incurred. Therefore, even though it can be a little more challenging, the accrual technique is typically the best option for any company invoicing customers.
A modified cash basis, which falls between cash and accrual, is an additional viable choice. A modified cash basis refers to operating on cash except for recording bills in Accounts Payable and sending invoices to customers, which results in the creation of accounts receivable.
Before making your first transaction, you should decide which system is best for your company.
To efficiently use an accounting system, you can also utilize the incredible services of software like Zarmoney, which lets you manage invoices, receive payments, and stay up-to-date with its cloud accounting solutions easily.
3. Track Your Revenue and Expenses
As a small-business owner, individual transactions matter to you, but so do your overall financial trends. To identify areas of strength or growth, based on past data, you and your financial advisors need to analyze and categorize your expenses and revenue streams. So it's a bright idea to occasionally take a seat and consider these developments from a broad viewpoint.
Robust accounting software solutions can be quite helpful because they make it easy for you to keep track of both one-time and ongoing spending. However, many small-business owners rely on pen and paper ledgers or simple spreadsheet programs like Microsoft Excel. Create a process that works for you and follow it religiously.
Additionally, you might benefit from using payroll and invoicing software to keep track of your inbound and outbound transactions. Furthermore, these technologies can automate your ongoing revenues and expenses, freeing up more of your time.
4. Effective Accounting Software Selection
You want to maintain a complete log of all your business spending. This entails preserving and keeping track of receipts at least on a weekly basis, if not daily. You will severely limit your time if you don't have a reliable core accounting software system (like ZarMoney) and cloud-based expenditure technology. This burden won't disappear if you don't use technology as your company expands.
When choosing which one to utilize, don't just consider whether the accounting software will fulfill your present bookkeeping demands. Each software program and technological advancement should also be assessed for its capacity to grow with your company as it develops and your back office requirement changes.
5. Active Monitoring of Accounts Payable and Accounts Receivable
Monitoring AP/AR is at the top of the best bookkeeping practices because it is crucial to your company's financial health. Making the most of your available cash requires maintaining your AP/AR. Accounts payable monitoring ensures you pay your creditors correctly and on time, so you can avoid late fees and possibly even benefit from early payment incentives.
In addition, monitoring your accounts receivables will help you get paid faster because you'll manage your invoices more effectively. This includes sending out bills on time and following up on any accounts that are past due.
6. Stay on Top of Bank Statements
Check your banking transactions daily, regularly reconcile your bank statements, and take immediate action to fix any problems you notice. Your cash on hand should correspond with your books, as shown by reconciling your bank statement. If the two don't match, you know there is an issue that needs to be looked into immediately.
Maintaining a close eye on your bank statements also aids in fraud detection, bank error detection, cash flow tracking, and accounts receivable management.
7. Establish Internal Control Authorities
Your bookkeeping is quite susceptible to fraud. As a result, internal controls should be implemented to lower the fraud risk. As is customary in bookkeeping, you should divide your financial duties into three main divisions. Ensure no single employee has concurrent control over authorization, record-keeping, and asset custody.
As a result, you can designate one employee to draught the check, another to check the bank account, and a third to complete the payment. Outsourcing is a terrific approach for small businesses to maintain a solid and effective accounting system. According to research , nearly 37% of small businesses outsource their IT and accounting functions.
8. Tax Planning in Advance
Maintain constant contact with your tax accountant to ensure that you are doing everything possible to keep records and track expenses so that you have everything you need fully organized when the time comes to file. Keeping your taxes organized will also allow you to make strategic decisions throughout the year to decrease your overall tax burden and avoid costly penalties.
9. Maintain Clean and Thorough Records
Are you prepared for an audit when it comes to taxes and compliance? After filing your taxes, you cannot discard your previous records and begin a new year.
The IRS has established guidelines for how long firms must keep copies of their tax returns and records, such as expense receipts, applicant information, payroll tax records, and operational records, on file. The basic rule of thumb is seven years, although specific criteria vary.
10. Get Reliable Bookkeeping Software Services
By working with Zarmoney for outsourced part-time accounting services, you may receive expert guidance in setting up your company's best bookkeeping practices, In addition, our financial experts can help you get and maintain your financial books in order.
Whether your company requires assistance with some aspects of your day-to-day bookkeeping or you need an extra hand entering transactions at the end of the month.
ZarMoney's all-in-one accounting software can assist you in setting up reliable bookkeeping procedures using the most cutting-edge instruments. We offer a broad range of financial services for small businesses, nonprofit organizations, and corporations of all sizes and industries.
Our services are scalable to match your company's expanding demands. Call 1.855.927.6663 to speak with us about all the bookkeeping and financial services we provide, or request a consultation online.
