As a small business owner, you need to wear many hats. You need to manage your payroll, keep tabs on the inventory, and track finances. Unless you know how to manage all these aspects of your business swiftly, you’ll end up making your job much more tedious. You also lose the chance of getting more funds when your accounting books are not kept clean and are full of errors.
According to the Wasp Barcode, more than 21% of small business owners do not know enough about bookkeeping. This is one of the reasons why such crucial financial records do not get filled out on time. Whether you don’t know much about managing an accounting record or don’t have time, you still need to reconcile your books right away. Clean records are the only way your business can continue thriving with investors and partnering companies willing to work with you. Good accounting records will also help you stay out of trouble with the IRS. So, here are some tips to help you keep your records clean.
1. Separate your business and personal account
You need to treat your business and personal accounts as separate worlds. This helps you keep two different books for each account. Instead of having a cluttered mess, you can categorize the transaction activity of each account. Auditing becomes immensely more straightforward, and you can easily spend your company’s money in a trackable manner. You also get to design a realistic budget on your company funds without worrying about misspending.
Consider exploring degrees in accounting if you wish to take your financial management game a step further. A business major will help you estimate company expenditure through forecast models, enabling you to distribute funds adequately. Still, you may ask yourself, why pursue a managerial accounting MBA degree at all? Capital budgeting in the service of running a profitable business is the answer.
2. Get your cash accounts reconciled
Cash reconciliation is a vital accounting process that matches your company’s cash balance with the bank’s recorded statement. Both statements must be balanced, and if there are any discrepancies in your records, they will reflect on these statements. When your account’s statement is not balanced, you can quickly check where the issue lies. This helps you identify the source of your problem and make necessary amendments right away.
Some of the reasons your cash account may not reconcile are fraudulent activity, outstanding payments by your consumers, duplicate entries, and missed transactions. When you get your cash account reconciled every quarter, you get accurate information for your accounting records, free of errors.
3. Capitalize fixed assets
Capitalizing on your fixed assets is essential for your business since it can be a source of profit for your company. These assets are redundant when left idle. The best way to keep your accounting records clean is to capitalize on your fixed assets and depreciate their value periodically until they are used up.
However, before you start capitalizing on all your fixed assets, you must follow specific guidelines. These guidelines ensure your fixed assets give you benefits, such as import duties, if valid for at least a year. The fixed assets must also serve a purpose in your business, which is why empty properties and buildings cannot be earmarked as such. So, your fixed asset must decrease in value periodically and not with sudden drops in value.
4. Match credit card statements
It would help to match your card credit statements against your bank statements. If every transaction matches, your account record is clear. When transactions do not match, you must investigate the source of the gap and remedy the situation right away.
There are numerous reasons why your transaction activities may not match. Your employee may have misplaced their card. There may have been an error in the system or made by the bank, or even fraudulent activity. Outside of these factors, you have no reason to worry.
5. Track your cash flow
Record every payment you receive for a bill. This ensures you don’t have an outstanding balance that needs repayment with every transaction. It also better informs you how money flows into your bank account and helps identify red flags early.
The same goes for invoices. You need to note down the activity, which helps you figure out how much money you’ve spent. When you create a payment for any bill, you get to monitor your transaction activity better with solid records. This helps you submit any document such as relevant invoices and statements when your account book doesn’t balance.
Conclusion
Managing your accounting books can get challenging, especially when you need to run several steps to verify all the transaction activity. However, once you get into the habit of auditing on time, it saves you the trouble of dealing with an unbalanced book at the end of the quarter.
There are simple ways you can apply to keep your books squared away. It would help keep your financial and personal expenses separate, so the mingling of funds doesn’t pose a problem. You need to reconcile your bank account and credit systems to verify account activity. Make sure you capitalize on fixed assets to keep your book balanced and reflect a profit. Don’t forget to track your cash flow to avoid being caught off guard during an audit.
