In what ways does your bookkeeper help you make sure that your company is financially safe? Local bookkeeping best practices always include at least the following five principles. Each one of them is easy to put into practice in any small business. It’s even easier when you have a knowledgeable local bookkeeping team on your side!
1: Local bookkeeping best practices always include separate accounts.
We hear about so many companies where the owners mix their personal and business funds. It’s not surprising; it’s a pain to manage different accounts when you’re starting out. Of course, the longer one goes without making this essential correction, the more likely they are to have serious problems down the road.
It’s important to keep accounts separate for tax reasons. It’s also a matter of simpler bookkeeping. It’s easy to forget the purpose of a particular small expense. Was it for your business, or for your home office, or something that you were buying for your kids school?
Using different cards eliminates that problem right at the moment of sale! Always have separate bank accounts for business transactions and all personal financial matters.
2: Make sure you establish strict dual control over payments.
Once you have separate accounts set up, another interesting question comes into play as your organization grows. Who has access to your company’s money, and can you trust them? In an ideal world, you’re always able to hire people you can trust to handle your money in wise and ethical ways. Sadly, as many business owners come to experience, there are no guarantees.
This is one of the most important local bookkeeping best practices we can recommend. Every transaction your company deals with must pass through the hands of at least two people. This refers to payments to and from other entities, including debtors and creditors. A great example of this is payroll. You can have a payroll clerk or accountant write up or print out all the checks. Somebody else should be the one who signs them, though! The authorized signers on that account should never be the same people who print the checks. That means the signers also should not have access to adjust the payroll program on their own.
This ensures that at least two people are responsible for each other’s decisions. You can apply the same principle to receiving incoming payments from other companies. Everything your business receives should be verified by two people. They will witness the accuracy of what they receive and record.
3: Cash or accrual? There’s a big difference!
Another very important factor you need to consider is the type of accounting you will be using. Many small businesses operate on cash basis accounting. This refers to only recording on the ledgers the exact amount of cash that comes in, it goes out, and that you have on hand at any given moment. It does not take into consideration transactions where payment comes many days before or after the exchange of goods.
For small businesses, especially in retail, this is rarely an issue. It makes sense to record only the actual cash, and it can be quite a bit simpler. As a business grows and starts dealing with longer-term contracts, this changes. It starts to create a very inaccurate representation of the company’s financial strength. Companies that can expect to be in that kind of situation at any point in their existence should use accrual basis accounting.
This is one of the key local bookkeeping best practices. It reflects on the ledgers what a company owes to other businesses or customers. It also shows what outside entities owe the company. Because of this greater accuracy, it’s required by law for certain types of companies.
4: Tax preparation is one of the most important local bookkeeping best practices.
Not all bookkeepers are certified tax preparers. You should not expect your bookkeeper to be able to file your taxes for you. It’s essential for every business to work with a certified public accountant during tax time. That does not mean, though, that your bookkeepers can’t help you with your taxes. In fact, local bookkeeping best practices always include useful tax preparation help.
Good bookkeepers will record transactions every month as always. Besides that, though, your bookkeepers should be able to work directly with your CPA. They provide them with all the information they need to cut your tax burden. That’s because bookkeepers should be able to keep all expenses categorized and itemized. Every quarter, your bookkeeping team should turn over a digital packet of materials that helps the CPA do their best work.
5: Monthly reconciliation and update meetings keep everyone on the same page.
Bookkeepers don’t only need to be able to talk to your CPA. Their communication is also for you! Local bookkeeping best practices always include the ability to produce clear reports. You need to be able to see at any given moment the financial status of your company. And it needs to be so much clearer than just a mass of numbers.
At SyncLedgers, for example, we build customized dashboards. This software provides an up-to-the-minute look at your company’s financial standing. You’re able to see the status of all your accounts, and compare them with past trends and future projections. It becomes possible to understand where your company’s going, where it’s been, and why things are the way they are now.
Reach out to SyncLedgers today if your financial management isn’t reflecting these best practices! We’ll be happy to get you started!