Bookkeeping is a core business function that cannot be ignored. It is crucial for the proper functioning and success of any business. Regardless of whether the business undertakes bookkeeping service themselves or opts to outsource, an insight into its best practices is essential.
Ideal Bookkeeping Practices
Ideal bookkeeping practices that are essential for business success are:
Automation of documentation processes: Automation in Bookkeeping and Accounting decreases the chances of error, makes documents storage easy, and saves the time and effort of bookkeeping service providers, making them more efficient.
Separate duties in your accounting department in order to reduce risk of fraud: Make sure that tasks are appropriately separated among individuals to narrow down significant risk of fraud. Different individuals should perform the task of making a check and authorizing payment and reconciling with the bank.
Backing-up data: It is critical to regularly maintain data back-up as data loss can result in severe consequences compromising Bookkeeping efforts.
Use of technology to track transactions: There are various accounting software available like QuickBooks, Xero, or NetSuite (if you are a larger enterprise) that assist bookkeeping and Accounting experts in keeping track of transactions daily. Failure to keep track may result in severe consequences. It is important to always keep in mind to choose a software that not only meets the current business needs but will also scale up with the growth of the business.
Selection of the accounting method appropriately: Determine and choose the accounting method best suited to the business practices. It may be accrual, cash, or modified cash bases.
Diligent management of debtors and creditors: Having an appropriate record of payables and receivables will prevent the organization from suffering from the additional cost of late fees and bad debts, but more importantly will make it possible to have a positive cash flow and keep growth on track.
Perfecting the chart of accounts: The chart of accounts is the heart of bookkeeping and management accounting. the chart of accounts aids in keeping track of the customer acquisition costs, break-even point, and return on investment.
Creation and monitoring of accounting and financial reports monthly: Proper bookkeeping will enable your firm to develop a monthly reporting policy that helps understand the drivers of business (KPI’s) and profitability.
Reconciliation of balances and bank statements regularly: Reconciling your accounts in a monthly basis will enable your firm to identify and rectify bookkeeping errors.
Be Tax ready: Proper bookkeeping and accounting will enable your firm to be ready for tax season making it easier for your CPA or EA (Enrolled Agent) to file your taxes on time minimizing the overall tax burden and avoiding expensive penalties.
Bookkeeping for service businesses, in the growing phase, may seem difficult; however, it is essential to remain competitive in this challenging economic climate. Bookkeeping enhances the understanding of business operations, boost financial credibility, and intensify business growth.