Bookkeeping is the glue that keeps your business together
Many business owners don’t keep good records. Some don’t understand bookkeeping; others understand it but maybe afraid of what the numbers might tell them. If your reocords aren’t in good shape, the business could fall apart. A healthy business is monitored through its records on a regular basis so you can find problems and correct them before it’s too late.
1. Keep an audit trail
An audit trail is nothing more than a record of all your invoices and checks in numeric order. The thing to remember is never skip numbers. Record voided cheques and invoice numbers in numeric order with all other cheques and invoices. Only denote each one that is “voided.” This assures there will be no gaps in your numerical sequence and leaves a proper audit trail.
2. Due Date Reminders
It’s a good idea to follow a computerised diary for each due date reminder. Due dates should be recorded for all tax, superannuation, insurance obligations and any other statutory requirements.
3. Be Consistent
Consistency is essential to successful business bookkeeping. If you use a paper bookkeeping system, always be sure to head your columns the same way each month throughout the year. This small matter of consistency will save you and your accountant time and aggravation.
4. Deposit Books
How do you handle your bank deposits? One easy way is to record your daily deposit in a deposit book. Generally, these books come with a white (original) copy and yellow (duplicate) copy in books of 50. For a small business, an order of 200 duplicate deposit could last 2 years unless you make deposits everyday. As you write each deposit, it is a good idea to remove the white copy to give to the bank and leave the duplicate (yellow) in the book. That way nothing gets lost.
5. Bank Account Statements
When opening a business cheque account, you should request a statement with a month-end cut-off date. This will save you time when reconciling your records with the bank statement every month. The closer the cut-off date to the month end, the fewer cheques you will need to record as outstanding. And don’t toss those bank statements into a filing cabinet without reviewing them. Resist the urge to do this! As soon as your statement arrives, review it before anyone else sees it, including your bookkeeper or employees.
6. Petty Cash Tin
Almost all small businesses make small cash purchases. You may want to set up a Petty Cash tin to keep control of those purchases. Get yourself a metal cash box and put in currency and coin that totals $100.00, for example. . This will be your starting point. The value of this tin should remain at $100.00 at all times. Perhaps you or your employee purchases a notebook at the local office supply store for $5.00, using money from the Petty Cash tin. When you get back to the office you will put your receipt in the box. Now you should have $95.00 in currency and one receipt for $5.00. The value of your box is still $100.00. You can continue using the Petty Cash Box until you run out of cash. Then replenish the box by writing a cheque for “Cash”, expensing all the receipts, and cashing the cheque at the bank. After you cash the cheque, the new currency and coin go into the Petty Cash tin, so you’ll be starting again with $100 in the tin.
7. Storage Boxes for Each New Year
Keep all your records for one year in one box. If you need more than one box make sure you label each box the same year, contents on the outside of the box and note that it is box 1 of 2 etc…You can put a copy of your tax return, bank account statements, BAS, Super, Payroll records, paid creditors etc . Store it somewhere accessible.
8. Filing Paid Invoices
Start new lever arch file folders at the beginning of each financial year for all your paid paid creditors. It’s not necessary to start a folder for each supplier unless you do a large volume of business with that supplier. You could get by with a folder for all suppliers from A-K, L–Z.
9. Printing Invoices
Ensure all your customer invoices have a Remittance section on the bottom of the page which clearly states invoice number, amount and customer name. This will make it quicker to allocate the payment on your accounting system.
10. From Paper System to Computer Program
When going from a paper bookkeeping system to a computer system you will want to run dual systems for a few months. You want to be sure both systems come up with the same totals before dropping the paper system.
11. Deposit That Cash Right Away
Get into the habit of depositing all cash immediately at the bank once it is received. This ensures that all income will be properly recorded.
12. Choose the Right Accounting Method. Cash or Accrual?
Many small businesses opt for the cash system because it is much simpler. In fact, the ATO requires that you use the accrual method only if you have $1 million in sale. It is best to consult with your Accountant which method is best for your business.
13. You Are Taxed On Net Profits
Many business owners think they are taxed on all the money they take out of their business. In fact, if you are a sole trader (rather than a corporation) you are taxed on the profits of the business-not the turnover. Your estimated income tax payments should be based on the net profits of the business.
14. Computer Software
The biggest mistake people make is not taking the time to set up their accounting software correctly when they install it on their computers. The old saying “Garbage in – garbage out” applies here. If you want a financial report you can trust, you will need to be sure it is set up correctly from the start.
15. Start at the end
When starting a new business; determine what expense categories to track by taking a look at the tax return you or your accountant will need to file. Write down all the categories that apply to your business. Then include those categories when you set up your bookkeeping system.
16. Don’t over-categorise
Most of us tend to make things harder than they need to be. For instance, when categorizing office supply expenses, we don’t need separate categories for fax paper, letterhead and printer cartridges, etc. All these items can simply be listed under Office Supplies.
17. Personal Credit Cards
Save time by using a private credit card. Do not mix your business credit card with your private expenses. This creates unwanted bookkeeping expense.
