6 Practical Bookkeeping Tips for Independent Businesses & SMEs
Any business can find accounting and bookkeeping tiresome, but if your independent or small and medium (SME) business does not keep accurate records, filing your taxes could become strenuous. Without a structure in place for your company’s finances, a lot of things may leak through the gaps and ultimately cost you money.
Here are some refreshers on how to streamline bookkeeping better so that your accounting and tax filing records are well-kept.
What is Bookkeeping & Who is a Bookkeeper?
The regular recording of a business’s financial activities is known as bookkeeping. Companies can track and refer to vital business information to make important operating, investment, and financing choices with the help of effective bookkeeping.
People who manage all of a company’s financial data are called bookkeepers. Without bookkeepers, businesses would be hard-pressed to know both their internal activities and present financial situation accurately.
Practical Tips to Improve Your Bookkeeping
1. Find the right bookkeeping software
There are many choices for bookkeeping and accounting software today, all within a click of a button. Some packages are free to use while premium ones are paid, which spells more overhead costs for profit-oriented businesses.
Therefore, before investing in pricey software, identify what your financial information needs are. Would you need the multi-currency capability, or one or multiple concurrent users’ access? Can the software be integrated with other systems via Application Programming Interface (API) so you do not have to import data all the time? It will be advantageous if you can choose an accounting platform which minimises manual data capture activities although the higher the integration usually means the more expensive will be the system cost. Thus, take the time to find the right balance and give it a test run.
2. Set a budget for taxes, commitments, and big expenses
Budgeting is critical to any business to ensure that there are enough resources to go around. For bookkeeping best practices, plan out your annual or monthly budget for taxes, operational commitments (OPEX) such as payroll, rentals or loans, and other large capital expenses (CAPEX) such as vehicle purchases, renovations or more.
Forecasting and budgeting for a company’s tax liability are especially important to keep in mind. This will ensure you can file and settle your tax obligations in a timely manner and reduce the risk of paying avoidable Inland Revenue penalties. Businesses may incur more costs (eg. higher bank interest or other temporary loan facilities) to pay late submission penalties due to a lack of cash flow planning or budgeting.
3. Separate personal finances from business finances
It is quite a simple and very well-known fact that your personal finances should be kept separated from business finances. This is the Golden Rule of bookkeeping to ensure proper finances are managed and your books are clean and accurate.
How do you separate personal and business finances? You should have a business banking account for starters. Then, ensure that you pay yourself a salary instead of transferring money to your personal bank account. Other ways include separating and categorising receipts, identifying if an expense is for business or personal, and informing everyone else in your team to follow the same distinction.
4. File and categorise receipts
For a business to have auditor-approved bookkeeping, it is important that it keeps and file invoices and receipts accurately. It is one thing to ensure all expenses are accounted for, but it is also equally important that they are categorised properly. This will ensure accurate financial reporting that will assist you to make better decisions later on. Proper bookkeeping can also help you make more informed decisions whether they pertain to forecasting future financial positions for banking facilities applications or more on a day-to-day operational level such as deciding credit terms for new trade customers.
5. Stay alert to your cash flow
Many independent SMEs face detrimental financial troubles due to cash flow. This can happen when the money spent is greater than your receipts. Thus, it is very important to monitor your monthly cash flow to ensure your books show good bank balances.
Always chase your receivables and set a fixed-term deadline for your clients to pay. Some businesses set clear payment terms that include late payment fees, upfront deposits and proper invoicing to ensure that there is adequate cash at the end of the month after settling all of your own expenditure commitments.
6. Work with an advisor and outsource for better efficiency
As business owners or key team players of your business, there are a lot of moving parts that you need to keep track of every day. To streamline bookkeeping and accounting, you can consider working with a professional firm and outsourcing these functions.
Why outsource your bookkeeping & accounting?
Cost-effectiveness: Compared to a full-time hire, you are paying an outsourced bookkeeper only for their professional work instead of recurring payroll and employee expenses.
Accuracy: Outsourcing an accountant or a bookkeeper function ensures better accuracy with correct filing, receipt and invoice processing, and proper separation of business and personal finances.
When working with a trained professional, you will be able to get helpful advice to further ensure that your bookkeeping complies with best practices.
Knowledge and consistency are both necessary for successful bookkeeping. It is important to be equipped with the right foundation of sound bookkeeping and consistently put those ideas into practice.
If you think outsourcing can help your business, reach out to us at Ledgen and learn more about the accounting and bookkeeping services we offer. The team at Ledgen is known for their value-added services and ability to help businesses with complex requirements grow. No matter what industry or company size, Ledgen is able to cater to a plethora of accounting needs.