Don’t get bogged down with bookkeeping. Keep it simple — and accurate — by establishing a procedure and following that procedure each time you send out a bill or collect a payment. It sounds simple but it amazes me how many Directors of small businesses fail to do this.
Follow these steps to streamline and increase the accuracy of your bookkeeping system:
1. Design an invoice and keep the template handy. Make spaces to fill in amounts due from clients, job descriptions, hourly rates, outstanding balances and other information. When you send an invoice to a customer, keep at least one hardcopy for your records.
2. Set up a special checking or money market account that will be used for business purposes only. When checks come in as payment, deposit them into this account. This will allow you to simply and accurately reconcile at the end of each quarterly and at year-end. Note: When depositing checks, record in your checkbook the customer’s name and check number. This will help you if discrepancies arise in the accounts.
Use this account whenever you make a business purchase. Avoid at all costs writing personal checks from the account. Make sure that you make a note describing the business purchase. If you do make a non-business purchase from the account, make note of it so you won’t be confused at tax time. Fringe benefits tax may apply and need to be accounted for.
3. If you take credit card payments, set up a special checking account for this activity as well. Designate that all credit card payments are paid into this account and that your monthly fees automatically be deducted from this account.
4. If you take out business loans or establish business lines of credit, set up a special account into which the bank can deposit these funds. It’s generally best not to use these accounts for normal business purposes. Your records will be clearer if you transfer funds from these accounts into your business checking account (as described in Point 2 above). This will allow you to more accurately keep records of business purchases. If, however, you will be using the borrowed funds to make only one or two purchases (such as buying a large piece of equipment), you can write the check from that account.
Special note: When you transfer funds from this account into your regular business checking account, be sure to make a note in your business account check ledger that the deposit is NOT BUSINESS INCOME and is accounted for as a liability. Note the source of the deposit, the check number and the date of the deposit. This will keep your records accurate at tax time.
5. Keep a savings account or a money market account that is used exclusively for collecting and storing money for your taxes (i.e., for your quarterly estimated payments). Checks for this account should be written from your business checking account, written with your name on the check and designated in your business checking account as “To ATO account” or “To tax account.” Ideally, you should determine the appropriate percentage to take out of each deposit into your business checking account, and write a check for that amount to your ATO account.
6. To back up your records and to ensure greatest accuracy, keep a separate log that details each business check you write. Items to include in the log: name of company or individual to which the check is written, details of the transaction or purchase, check amount, check number, check date and any other items of information that will help jog your memory of the exact purpose of the check.
7. Also, you can keep a log detailing information contained in your invoices. Items to include: customer name, date of invoice, terms of invoice, details of work performed, etc. When invoices are paid, make a note on the invoice itself and in your invoice log.
8. Hire a good bookkeeper, the directors time is much better spent driving sales and managing the business rather than entering invoices into MYOB, Meet with your bookkeeper once a month o ensure everything has been correctly. From as little as 300-500 per month the time saved in doing bookwork can be repaid many times over by driving sales.
Following these simple guidelines will streamline and systematise bookkeeping for your business. They will help clarify your records, both for keeping track of individual payments and for tax purposes. When your business requires a more complicated bookkeeping system, try to keep the variations simple and repeatable. Being systematic is the key to headache-free bookkeeping.
Quest Corporate Services has many bookkeepers we can recommend to provide these hassle free services for your business, as well as many ongoing corporate advice and finance solutions. To take advantage of these services call us right away on 1300 311 411
Lucas McEntee is the Managing Director of Quest Corporate Services, a corporate advisory firm that assists small to medium business and offers services in such areas as cash flow, short term loans, asset protection, accounting, legal and debtor finance solutions.