Bookkeeping: Five Monthly Strategies
Love them or hate them, bookkeeping tasks aren’t something you can ignore in your business, and ignoring them only makes the inevitable tax preparation harder. But we’re here to help! Our recommendation is that you set aside a specific time each month to go through each of these tasks. Doing so can and will save you a lot of time and money in the long run! Here are the five most important things you need to be doing every month to keep on top of your finances.
Scan Your Receipts
Receipts are a certified pain in the backside. They’re small, they’re crumply, they get into every tiny crevice of your bag, and that’s not to mention the frustration of trying to go through piles of wrinkled and battered receipts, trying to find that certain one you need right now. But receipts are a necessary evil, and you must keep a strict eye on them! Why? Because you need to have them on hand in case you get audited. When it comes to tax time, having all of your business receipts present and accounted for will allow you to maximize your tax savings.
Throughout the month, scan all business-related receipts into your computer immediately. Make sure that the vendor’s name, the date, and the amount are clearly visible. Keep all of the scanned images in a single place on your computer.
Each month, go through your transactions in your accounting software and upload the matching receipts to each transaction. That way, everything is there and accounted for during tax time!
Go through your Accounts Receivable and Accounts Payable
Say you had a bill for seven dollars and some change arrive in the mail. You shrug, pay the bill, and get on with your week.
A few days later, a bill from the same company appears in the mailbox with another bill for seven dollars and some change. You know you paid it, so it must have been sent before the payment was processed. No big deal.
The next week, the same company sends you another bill for seven dollars and some change, and you know you’ve paid it, so you ignore it. This continues for a few weeks until finally, someone from said company calls you looking for the money.
“But I’ve already paid it!” you insist.
“You paid the bill that was for $7.45. I’m trying to collect on your bill for $7.83. Because that bill is now late, you owe a late fee of $20 in addition to the $7.83.” (This may or may not be a true story).
The moral of the story: pay attention to your Accounts Receivable and Accounts Payable!
- Enter all bills into your Accounts Payable immediately when you receive them.
- Use your accounting software to ensure that you’re paying every bill.
- Connect as many of your vendor accounts as possible to your accounting software. Doing this can help keep stray bills from wandering off.
- Quote and invoice your customers through your accounting software. That way you will always have a record of it.
- After paying your bills, go through your unpaid invoices.
- Make contact with any customers who have not completely paid their accounts.
Reconcile Your Bank Statements
You can’t see where you’re going unless you can see where you’ve been. Bank reconciliation, as explained here, is a critical task that can make or break a business.
- Sync your bank accounts with your accounting software. These programs come with bank-level encryption, so your data is safe. By syncing your accounts, your bank statements will be automatically imported and your transactions set up so you can match them with purchases or orders you’ve already created.
- Go over each transaction. Make sure that you recognize each transaction.
- Classify each transaction accordingly, using your chart of accounts. Don’t hesitate to adjust your chart of accounts to your needs!
Calculate Your Monthly Profit
Looking at your profits or losses allows you to take your business’ pulse, in a manner of speaking. It also allows you to make any changes if, say, one month you discovered you were running a budget deficit.
All accounting software has an option to run what is called either an Income statement or a Profit & Loss statement. It’s also a good idea to check you statement of cash flows to make sure you have enough cash on hand to cover an emergency.
Search your software’s documentation to discover how to pull up your income statement and cash flows statement.Go through each category of income and expenses. Make a note of successes and costly mistakes for future reference.
With all of the information you’ve gathered, you now have a clear picture of your business as it is today. At this point, you can start to plan out how you want your next month to go. Do you need to increase your sales so you can order that new office software you’ve had your eye on? Did you spend a little too much on supplies this month? Will you be able to achieve your year-long sales goal if you continue as you did this month? And speaking of long-term planning, do you have an emergency fund you can tap during the lean times, or when unexpected expenses pop up?
This last step is critical. Planning ahead allows you to prepare for curveballs like a inclement weather or a sudden accident or injury that you weren’t expecting.
Look to your yearly budget. Compare where you are to where you should be. Make adjustments accordingly. Build up your emergency fund. All businesses should have enough on hand to pay at least three months’ worth of expenses, but if your industry is seasonal, you may want to keep more money stashed away depending on your unique sales patterns. Dream big. Take some time and daydream about what you want your business to be like. You may think of something you hadn’t thought of before.
Spring cleaning is a breeze if you’ve been keeping your house clean all year. Bookkeeping is the same way. Do these five steps every month, and you will avoid massive headaches at the end of the year. Imagine tax season coming around and you not freaking out, because you’re already on top of your financial situation. Sound wonderful? It is. You can do it!