Today’s small businesses face unique challenges compared to their big business counterparts. Due to smaller staffs and limited financial resources, many small businesses struggle to maintain the day-to-day tasks associated with basic bookkeeping and financial management. With a little effort and education, however, small businesses can begin to excel at financial management and bring some organization back to their accounting books. In our work with small businesses in the Washington D.C. and Virginia area, we’ve uncovered the most common small business bookkeeping mistakes. The following tips are designed to help you fix these simple bookkeeping errors and get your accounting back on track:
- Maintain daily accounting records to improve accounting accuracy. Accounting shouldn’t be a once-a-week activity. To gain a true understanding of your business’ finances and to ensure financial reporting accuracy, you need to be maintaining daily records of your business’ finances. With the right accounting system in place, this doesn’t have to consume too much of your time. In fact, simply devoting 10 to 20 minutes a day to basic bookkeeping tasks can do wonders for your business.
- Use the right accounting system for your business. No accounting software is perfect for every business; that’s why we suggest exploring your options and choosing the software that works best for you. Specialized small business accounting software, such as Sage MIP Fund Accounting or Blackbaud, can help you streamline your accounting processes; however, basic accounting systems such as Quickbooks can be equally effective. Take the time to determine your needs in an accounting solution and choose the most cost-effective solution to fit your needs.
- Review bank statements on a monthly basis. Most banks provide bank statements with a month-end cutoff, making it easy to gain a complete month-to-month view of your business spending. Synchronizing your bank statement with other monthly records will make it easier to reconcile your statement and keep a close eye on business expenses.
- Implement a detailed check handling policy. Checks should be handled with the same amount of care and attention to detail as cash. Don’t toss canceled checks in a drawer and forget about them – dispose of them correctly. Canceled checks are as good as cash, and if something goes wrong, your business, not the bank, is responsible. Make sure you review all canceled checks before anyone else in your business (including your accountant and employees) sees them. This will help you catch unauthorized checks and prevent fraud from occurring.When signing checks, be sure to sign them with a distinctive signature that would be difficult to forge. If you are a partnership, consider having at least one partner co-sign all of the checks for added protection and accountability.
- Create an audit trail. Effective small business bookkeeping requires you to be able to quickly and easily retrace your business’ financial activities. Most current accounting systems have audit trail capabilities, but if your accounting software does not, you may want to consider investing in a solution that does. In addition to maintaining an audit trail in the accounting software itself, make sure all of your financial files are organized. Keeping your invoices and checks in numeric order and not skipping invoice or check numbers can help you keep track of your finances, as can maintaining separate bank accounts for business and personal use. Chances are, if you can’t go back a year or two and reconstruct your business’ finances, your audit trail is not effective.
Stay tuned to our blog for additional small business bookkeeping tips. If you could use some help organizing your accounting books, give us a call today. We offer a variety of small business accounting services to help you create clear and accurate financial records.