Bookkeeping procedures make businesses stronger, more valuable, and efficient. Follow these best practices and it can save thousands or tens of thousands of dollars in the long run.
Set up a list of accounts to classify all of your transactions. Doing so will allow the summary of the accounts in the form of financial statements. Analyzing these useful data tools gives management or ownership the power to analyze money made and money spent. Furthermore, they compare periods so financial anomalies can be found quickly and addressed immediately.
Some businesses handle mostly cash transactions, and conversely, some handle primarily credit or debit card transactions. Then there are some that take only online forms of payment. No matter what form of payment a business accepts payments or uses to pay its bills, reconciliation of balances drives bookkeeping procedures. If a running balance does not get reconciled periodically, businesses handicap themselves with the inability to see if they lose money or make money.
Every operation that gives their customer terms for payment has accounts receivables, or funds owed from customers for sales. Because receivables represent hard-earned revenues, they require close monitoring and maintenance. The more stale, or old, a receivable gets, the harder it is to collect those debts. Money takes time and effort to earn. Staying on top of owed funds ensures payments in a timely fashion.
Paying bills on time and in full remains mistakenly highly underrated. No one wants to wait on money they earned. Similar to receivables, accounts payable need monitoring regularly to asses their age. Overdue payments make vendors angry. They will care less when the business contracts them to do a job the next time. In contrast, vendors paid quickly will work harder, respond faster, and reciprocate with a positive attitude.
Human psychology says checklists and to-do agendas give a sense of fulfillment and pride. Accordingly, clearly outlining revenue targets and milestones will product desired results ten-fold. Without goals to work towards, owners, management, and employees find themselves lost and without purpose.
Create budgets for expenditures and compare performance to the forecast regularly. In doing so, owners and managers can save a business from failure and give it staying power through difficult times.
Exercise hyper vigilance when watching the financials for variances and anomalies, especially regarding revenues and expenditures. Awareness prevents losing income and overspending. Additionally, a careful eye on all transactions will catch mistakes that throw off your financials, so diligence and review is crucial.
Don't ever sit on inventory because in most cases, inventory can have a shelf life. If inventory does not moving out the door, it rots in a warehouse. Track inventory with a fine-tooth comb so capital doesn't get stuck awaiting sale.
Furthermore, constantly take actual inventory counts weekly or monthly. This prevents theft, spoilage, and provides an accurate picture of what inventory needs to move.
Always pay sales taxes and employee withholding taxes on time. These "trust" taxes do not belong to the business; they belong to the local, state, and federal governments. Due to this, businesses failing to pay these face severe consequences that will jeopardize everything.
Following these basic rules of bookkeeping could determine the success of a venture, while neglecting these fundamentals could bring detriment to even the most promising enterprise.