Accounting is the job of accurately planning and recording all day-to-day business transactions including accounts receivable, paid accounts, purchases, salaries, salaries and other financial matters.
Proper maintenance is essential to the life of any business. Accurate financial reporting helps ensure that your organization is aware of its current financial position and can control costs.
Systematic tracking of all financial records can be a complex and time-consuming process that small businesses may not have the time or personnel to manage these activities. Resolution Accounting provides small business accounting services to Canadian businesses so that you can focus on strong financial management and business growth.
In this article, we use our own experience to explain why strong bookkeeping practices are important, how bookkeeping challenges can be faced by small businesses and how they can be overcome.
Why Scheduled Booking Is Important
According to the Bureau of Labor Statistics, 20% of small businesses fail in their first year of operation, and only half survive up to five years of age. Challenges are applied to small businesses and clean books with accurate financial measures, providing the visibility needed to make good operational decisions to keep your business afloat.
All companies need to keep track of their sales, expenses, income, earnings and other financial measures to ensure sufficient cash flow to cover all costs and to make wise spending decisions.
Accurate bookkeeping also helps to create benchmarks to measure your business according to industry standards and your previous performance.
In addition to providing insight into the financial life of your business, accurate financial information is required for tax preparation, and can also be requested by banks or investment partners to better inform their lending decisions.
Without a formal and accurate accounting system, your company is at risk of tax evasion, poor budget decisions, and is unable to accurately track profits and growth.
How to Maintain Good Bookkeeping in Financial Management
There are many common areas where good bookkeeping services systems offer where businesses need to stay on top, especially small businesses with in-house resources.
Receiving Accounts and Collections
Payment and collection procedures can be difficult but are the key to healthy finances. To bring efficiency to available accounts and collections, your company must have standard invoices that can be modified and followed by partial orders. There should be well-documented procedures for when to send invoices and when to send payment reminders. Your company must also have proper procedures for chasing expired invoices. Without these tools, tracking unpaid invoices can be a big time drawing and will ultimately contribute to cash flow problems.
Revenue must be monitored to ensure that accurate records need to be kept. Money laundering problems can arise from having too many invoices, but also from other sources. One common source of cash flows that can be negative (and generally confusing) is the use of a single bank account for personal and business expenses. (According to a Clutch survey, 27% of small businesses do not have separate accounts for business and personal expenses). This makes it very difficult to separate business costs only in order to report accurate profits or losses.
Other sources of income problems include an understanding of how to analyze the following:
- Growing periods that require significant investment
- Entering new customers with long shopping cycles
- Introduction of new products that require prior investment
You will need documented documentation and general reporting to make an accurate assessment of your spending decisions.
Related Monthly Reporting
This brings us to financial reporting. Some small business owners make the mistake of thinking that their jobs are small enough to get a good financial outlook based on natural resources or by looking at a bank balance – and running reports only once a quarter or more. This is a sure way to let things flow smoothly without notice. Financial reports – profits and losses, outstanding accounts, and other important financial metrics should be generated and audited on a monthly basis.
Have well-documented monthly closing procedures
Not only should preparation of financial statements be done on a monthly basis, but reporting and close monthly procedures should be well documented and repeated. Timely and accurate financial reporting should be followed by validated procedures for the reconciliation of monthly balance sheets and the review of the profit and loss statement. This should include the most common ways of:
- Performing inventory calculations
- A monthly subscription to magazine articles
- Sync balance accounts
- Review of accounts of income and expenses
At Resolution Accounting, our viewers have expert knowledge and in-depth experience of working with industry-leading bookkeeping solutions such as Xero, QuickBooks, AccountEdge, and more.