Bookkeeping is the foundation of every business. Effective bookkeeping is crucial in order to monitor your cash flow, taxes, finances, and the robustness of your business. It helps you keep track of your business objectives to stay on the continuum to achieving the long term business goals. Developing effective bookkeeping habits facilitates you in keeping an eye on the different aspects and complexities of your business.
Poor bookkeeping can impact the growth of your business in more ways than one, i. e. it may lead you into legally complex situations. It is better to develop the following habits to improve your bookkeeping skills and increased effectiveness.
Separate Business Accounts
The first habit you should establish is to keep personal expenses separate from your business expenses. It might seem unnecessary or tedious, however, it’s essential that entrepreneurs open a separate bank account as soon as they begin their business operations.
Having one account that serves multiple purposes (personal and business) will only result in inaccurate bookkeeping. On the other hand, having multiple accounts in a company that has a plethora of transactions can lead to mismanagement as well. You should cross-check your books with the bank statements to validity your internal records.
Learn the Basics and Stay Updated
We suggest you have an expert handle all the complex workload that comes with keeping records. That said, you need to have basic knowledge of key bookkeeping elements, as it can make a huge difference to your business’ growth. For instance, if you have to resolve an issue regarding errors in bookkeeping with a professional bookkeeper or accountant. The basic knowledge will help you communicate effectively to reach a solution.
Furthermore, if you have international clients, differences in legislation can lead to confusion or incorrect records. If you are handling the records yourself, then it is important to have a strong command of your books to understand these legislation to avoid mistakes. Take time out to fill any knowledge gaps and stay updated with innovations in the industry. This will help you keep the stronghold of the subject for effective bookkeeping.
The bookkeeping can be overwhelming; however a competent and skilled accountant can help you manage and maintain your books without requiring too much effort on your end.
Learn from Mistakes
If you are learning basics and trying to fill the gaps, it’s much easier to correct errors as you discover them. It is natural to have errors and mistakes from time to time. It is important to learn from your errors to intensify the effectiveness of records.
You can keep track of frequent mistakes to avoid them further. If you face difficulties while resolving those issues, seek expert advice from a bookkeeper to help you out.
Organize the Paperwork
Keeping your business documents organized over time is a necessity for every business owner. By keeping your financial documents organized, you are easily able to track any query that may arise in the future. Being organized will help you produce any evidence needed if there is any tax investigation.
According to CRA, businesses are required to keep tax-related documents and claims for at least 6 years.
When starting out, small businesses and sole traders usually manage their own books to save money. However, it can be a very time consuming procedure so you need to evaluate if the benefits outweigh the cost.
Even though there are templates available online for bookkeeping, the complexities and extra workload might not be worth the extra effort.
As a startup, you should not only look at your current bookkeeping needs but also at how you’re building the foundation to scale your growing business. Speak to an expert accountant and bookkeeper to help you keep up with your current needs and scale your procedures and books for the future.
Track Your Cash Payments
Cash payments are not easy to track. It can be stressful trying to manage each and every payment that you make on behalf of your business, especially if you have copious amounts of transactions or if they are of a similar nature.
Keeping track of your cash outflow is easier if you use a credit or debit card. It’s also important to make notes to keep track of each expense. If a vendor requires cash payment, then it’ll be easier to track a few payments as opposed to if most of your payments are in cash.
Keeping track of your expenses is very important to determine your profit and loss.To validate your numbers, you can always cross-check with your bank statements, in case you find any discrepancies.
Invoices are Important
An invoice is a request for payment and a receipt is a proof of payment for goods and services that you have provided. It is important to be vigilant when it comes to keeping accurate records of the transactions.
Ensure that you immediately send invoices to your customers as soon as services or goods are provided. Invoices help you keep track of money owed to you. This habit will help your business maintain a healthy cash flow. Furthermore, this habit can help you spot any inconsistencies and will prevent any potential cash shortages and theft in the future. Boost your invoicing process with our carefully curated guide.
Keep the books updated
A company’s books help keep its financials in check. If properly updated, your company’s books can warn you before any major issues arise. By consistently updating your books, you improve the quality and reliability of your data. Depending on your business needs, you can update your books weekly, monthly, or even quarterly. Reliable and up-to-date data will help you make informed decisions for business growth.
Stay on top of deadlines
Keeping up with tax compliance deadlines is especially important. Planning ahead of deadlines helps to prevent any issue at the 11th hour. Often companies use all the cash they receive for operations and don’t save any money for their tax obligations. However, In order to meet your tax obligations, a good rule of thumb you should separate the tax element you collect as soon as you receive it. For efficiency, you can even open a separate bank account and transfer a payable tax amount in the account. Keep regular records and separate tax amounts so it will not burden the company’s finances when the time comes.
Another important deadline companies need to be mindful of is paying their employees on time. Timely payments of salaries keep employees motivated and professional. With a payroll accountant on board, you can meet your business’s payroll obligations quickly and properly.
Compatible Bookkeeping Software
It is important to use bookkeeping software that will suit your business’ current needs. The software should also be able to scale up as your business grows. Bookkeeping software can perform complex functions related to the cash book, general ledger, accounts receivable and payable, and tracking business bank accounts, and much more. The more your business grows over time; It will need more sophisticated accounting software to handle growing challenges.
Managing a business means lots of paperwork. You will need to keep track of your invoices, bills, receipts, tax documents, and bank statements. However, we suggest you start organising the documentation digitally to avoid losing any important documents. Having a digital record with a backup in the cloud of your important documents will not only ensure safety but also allow you to access your records from multiple devices easily.
For effective bookkeeping, innovative software is easily available. We suggest you introduce automation in your business to meet market standards without wasting time with manual data entry. You should automate your bookkeeping practices by using cloud-based bookkeeping software.