7 Bookkeeping Practices Every Business Should Implement

Bookkeeping is one of the most fundamental activities of a business. It’s the job of recording all financial transactions within your business. Without bookkeeping you won’t be aware of your financial position.

It’s essential to build a consistent bookkeeping practice so that you can avoid monetary issues and use your financial reserves efficiently to grow your company. With that being said, do you know how to build basic bookkeeping practices? If you don’t, we’re here to help. In this article, we list out seven essential bookkeeping best practices every business should implement.

1. Separate personal and business finances

The first bookkeeping practice is related to business finance management. Co-mingling expenses for personal and business purposes leads to many issues in the future for a business. Therefore, for your business’s sake, you should establish a clear distinction between your personal and corporate accounts.

The simplest approach would be to get a business debit card or a credit card. Both make it easy to track your business transactions. Details of any transaction are stored on the e-banking app which you can access anywhere at any time. 

Now that you know how separating finances helps you manage your business better, it’s time to inform other people involved in your business too. Ensure your employees aren’t buying things for personal use with business funds. If funds aren’t accurately allocated it will lead to cash flow issues as well as tax filing and auditing complications.

2. Determine which accounting method to use

Another bookkeeping practice is to choose which accounting method your company will use to record transactions. There are two standard systems of accounting: cash accounting and accrual accounting.

Cash accounting is relatively simple and broadly utilized by small firms. Cash accounting records transactions only when money is spent or gained. Due to its simplicity, the cash accounting method is also used by many people to manage their personal finances.

On the other hand, under the accrual method, transactions are recorded when they are incurred rather than awaiting payment. This means a purchase or expense is recorded as a transaction even though the funds haven’t been received or bills haven’t been paid immediately.

3. Establish cash controls

Cash controls refer to all cash management policies and procedures within your organization. Many of the financial hazards associated with running a business (such as inaccurate payments, theft, and fraud), can be mitigated by implementing procedures that maintain control over cash flow.

There are many examples of best bookkeeping practices which you can adopt to enhance the management of a company’s funds, including reconciling cash receipts to deposits and the general ledger, following up on collections of returned checks, or preparing cash flow forecasts. 

4. Keep track of sales

Bookkeeping is the recording of all financial transactions involving your business, and it goes without saying that sales receipts are the most important of all financial documents because they allow businesses to gain visibility into their performance, to identify whether they’re doing well and whether you have to adjust any strategies.

It’s essential to keep track of sales receipts because you’ll need them to calculate your business’s income. Your income reveals the profits or losses you make while operating your business. This data helps you make better business decisions, ranging from day-to-day purchases to long-term expansion.

5. Keep track of expenses

Bookkeeping isn’t only about the recording of sales, but also expenses. Expenses are a necessary part of any business. If you don’t keep track of your expenses, chances are you’re likely to run out of funds, or worse, you may get deep in debt.

Expenses turn out to be more tricky than one might think. People often assume expenses only include payments for office rent, utilities, loan repayments, or such. But business expenses are much broader than that. They could be anything that costs to run your business and are categorized into three groups: fixed, variable, and periodic expenses. Knowing which category each of your expenses falls into will help you manage them better.

Read also: 5 Tips to Control Your Business’ Expenses

6. Review financial data monthly

It’s critical to close the books on all financial transactions for the current month before moving on to the next. When you review transactions on a monthly basis, you’ll catch issues early and fix them quickly before they leak over into the next month. 

Other than that, reviewing financial data monthly helps a lot for your decision-making. By looking at the financial data you can determine whether your goals were achieved. Goals are an important part of running a successful business. 

For example, if your last month’s goal for sales revenue was $200,000 and you successfully achieved it, your business seems to be on the right track. On the other hand, if you fail to achieve your goals, you can quickly adjust your strategies to get everything back on track. 

7. Make a choice: professional bookkeeper or bookkeeping software? 

Many small business owners and managers take on the businesses’ bookkeeping management to save costs. As a result, the success of this task lies in their experience. But most of the time, their knowledge and experience are insufficient to handle this intricate job. 

If you ever find yourself in this awkward situation, there are two options: turn to a professional bookkeeper or adopt a bookkeeping software. Each of these solutions has its own advantages and disadvantages. Depending on your business size, model, and finance, you can determine which option fits best with you.

How can a professional bookkeeper help?

Bookkeepers are more experienced in handling records which could prevent errors that result in penalties on filing documents in the future. A bookkeeper provides you with a fresh perspective on your business, such as suggestions on managing your budget better and running your company.

However, the price of hiring a professional bookkeeper can break your bank. The average salary of a bookkeeper is $45,088, which means you have to pay them more than $3,000 per month. Unless you’re a big firm, whether to hire a bookkeeper should involve  serious consideration.

How can bookkeeping software help?

Bookkeeping management software are a better solution for small businesses, as they can do the same job as a bookkeeper and cost only a fraction of a bookkeeper’s salary. There are many names that you’ve always heard of such as  QuickBooks, Xero, or Shoeboxed. Bookkeeping management software developed by Shoeboxed is an ideal tool for small business owners. 

With Shoeboxed, you can turn your receipts into data, organize them, make reports and analyze your current financial position at any time and anywhere. And Shoeboxed only costs from $18 to $54, depending on your business size. To get the most out of your bookkeeping management, get started with Shoeboxed for free!

The bottom line

Proper bookkeeping practice drives your company to success. It allows you to stay on top of your business transactions. What’s more, it streamlines your financial data management; hence, you can stay focused on growing your business. 

What Are The Differences Between A Bookkeeper And An Accountant?

Regardless of your business’s industry, size, and model, bookkeeping and accounting professionals play an essential role in the financial health of your business. While many people know that a bookkeeper is not the same as an accountant, they can’t put their finger on what exactly differentiates a bookkeeper vs accountant. 

In this guide, you’ll learn what separates an accountant from a bookkeeper, which your business should hire and when to employ them. 

Bookkeeper vs. Accountant: An overview 

A bookkeeper starts and an accountant finishes. In other words, a bookkeeper handles the initial stage of an accounting process which is recording and organizing daily financial transactions. An accountant takes up the work done by a bookkeeper and carries on the remaining tasks of the accounting cycle. Accountants are then responsible for analyzing and interpreting data gathered by bookkeepers, consulting with business owners, and preparing financial reports. 

To look at the differences in detail, we will compare bookkeeper vs accountant in two major aspects: job description and required credentials.  

Bookkeeper vs. Accountant: Job description 

Duties of a bookkeeper:

The practice of bookkeeping is far from new to the human race. Bookkeeping may have existed as early as around 2600 B.C. A bookkeeper’s core duty is to maintain complete and accurate records of the money coming in and out of business in a general ledger. Bookkeepers keep track of daily transactions in a consistent, systematic way, and their records allow the accountants to perform their jobs. 

Apart from the primary task of managing accounting ledgers, there are many other responsibilities that a company would ask from a bookkeeper.

A bookkeeper’s job description typically includes: 

  • Entering and correcting Accounts Payable and Accounts Receivable
  • Reconciling accounts and matching bank transactions
  • Issuing invoices and processing payments 
  • Managing expense reports 
  • Processing payroll 
  • Adjusting entries where necessary and as instructed by the accountant

Besides the above-mentioned typical responsibilities of bookkeepers, their duties vary depending on the industrial environment and business nature. For example, if you own a cannabis business, you may want to look for someone who can use seed-to-sale software (Biotrack, MJ Freeway, METRC, etc.) Or a bookkeeper who knows how to deal with IFTA (International Fuel Tax Agreement) will be an ideal choice for trucking businesses. 

Duties of an accountant: 

 An accountant analyzes the financial data collected by the bookkeeper to provide vital business insights and financial advice to the business owner. Accountants look at the big picture, putting key components of your business’s finances together and presenting them via financial statements. Such reports offer you a clear view of where your finances stand and what they imply, as well as what you can and should do about them and where you may anticipate your company will go in the near future.

The following are a few examples of typical requirements in an accounting job description: 

  • Preparing accounts and tax returns
  • Monitoring business spending and budgets
  • Auditing and analyzing financial performance
  • Administering payroll
  • Compiling and presenting financial and budget reports
  • Providing tax planning services 
  • Providing timely forecasts and important insights for future growth

Accounting work is often office-based, with usual 9 to 5 working hours. However, the workload typically becomes much greater during peak seasons like the tax period and the end of a fiscal year.   

In small businesses, an accountant may undertake all of the activities associated with the accounting process, but in larger businesses, various accountants are often in charge of different accounting areas. This might cover both financial and managerial accounting.

Bookkeeper vs. Accountant: Credentials and licensing 

Requirements of a bookkeeper:

In most cases, bookkeepers don’t need to acquire any certificates to handle the books. Businesses or employers usually only require their bookkeepers to have a high school degree providing basic math, communication, and computer skills. Other necessary skills like time management, organization, and multitasking can also be gained in high school.

While bookkeeping is not a licensed profession, businesses sometimes ask for a certification as proof of expertise. Many big organizations offer accreditation and licensing to bookkeepers, such as the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB).

Software companies for bookkeeping and accounting such as QuickBooks, Excel, Xero offer certifications to highlight bookkeepers’ skills and abilities using these software products. So if your accounting system is heavily dependent on software, a bookkeeper with a sophisticated understanding of accounting-support programs should be your best option. That’s when these software certifications can help you. 

Requirements of an accountant:

Although not always mandatory, an accountant needs to obtain at least a bachelor’s degree in accounting or related fields like business, economics, finance, or management. 

In addition to a university degree, an accountant can earn advanced accounting certificates to demonstrate their competency, such as a CPA certificate. A CPA is a “certified public accountant” who has satisfied the state’s standards and passed the Uniform CPA test. They must also meet continuing education criteria to keep their certification. 

When interviewing for a CPA, seek someone knowledgeable about tax law, proficient in accounting software and with excellent communication skills. They should be familiar with your sector as well as the unique demands and expectations of small enterprises.

When to hire a bookkeeper vs. an accountant

If your business is still in the early stages and you feel confident managing all the receipts and recording transactions, you may not need a bookkeeper yet. Do your own bookkeeping and hire a part-time accountant as a financial consultant.

However, when your business starts growing you’ll soon be overwhelmed by the paperwork. Then, it’s the right time to get a full-time bookkeeper to record daily data and keep your finances organized. Plus, an accountant at this point can help you create a long-term business plan, handle taxes neatly or advise you on the legal structure. 

Before you finally decide between a bookkeeper vs accountant, consider not only their credentials and expertise but also their cost, reputation, and their experience working in your industry. 

Try Shoeboxed today!

Whether you do your own bookkeeping or hire a professional, receipts managing and organizing still causes a lot of headaches. Shoeboxed can help you digitize every receipt, automatically extract data and categorize them for you within seconds. With Shoeboxed your receipts are stored safely in the cloud, fully searchable and well-organized. 

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