Bookkeeping is the process of recording financial transactions conducted by the business. It begins from the generation of source documents and ends once the financial reports are compiled. Bookkeeping not only helps in business decision-making but is also a basic tax requirement.
While the bookkeeping process, if done correctly, is relatively straightforward, many inexperienced business owners make fundamental mistakes at an early stage, which makes the process far more complicated. This article contains seven key tips that you can use to streamline the bookkeeping process, thereby saving time and effort in the long run.
1. Automate the Activities
One of the best steps you can take at an early stage is to minimize the manual work. With all the technological advancement, it is pointless to spend hours and hours manually recording the transactions. The best way to automate your tasks is by using simple bookkeeping software. Many bookkeeping software, such as QuickBooks, is powered by AI. This means the system gradually learns from your activities and automatically records or classifies the transactions. You can also create automation rules, such as sending invoices after a specific period, sending reminders and making recurring supplier payments. Most bookkeeping packages also contain tools to help you identify the common errors and assist you in the periodic closing. If you are not using these bookkeeping software programs, you are wasting your precious time to save few bucks on the subscription.
2. Go Paperless
While many businesses attempt at going paperless, most of them fail to achieve the desired objectives. This is because the use of paper is not entirely in your control. Your supply chain partners, such as customers and suppliers may still be using papers, and you need to accept them if you want to continue doing the business. Nevertheless, there is a lot you can do to become paperless.
To start with, you should stop using paper within your operations, not just in relation to your bookkeeping software. If the internal departments use paper, the accountants cannot disregard them. Try shifting all the forms, approvals, and documents to soft versions. Whenever you send any document, for example, a customer invoice to your partners, use electronic as opposed to paper versions. Finally, you should maintain all the records in soft or scanned versions. There is typically no tax required to keep the original paper copies as long as you maintain colored scans. Going paperless will save you from the hassle of searching thousands of files and countless documents. Everything will be accessible with a couple of clicks. It is also easier to maintain backups of paperless records so your data is always safe and retrievable.
3. Maximize Integrations
Your bookkeeping software is not an isolated platform. Instead, it communicates with all the other software programs to send and receive information. For instance, information about sales will be flowing in from your website or payment service provider. Information about cash inflows and outflows will be imported from the bank statements. Operational details will come in from the operational software if any. From day one, the objective should be to use software programs that communicate with each other instead of being operated in silos. If you maintain standalone packages, you will not only require more time in data transmission but there is always a risk of mistakes or errors arising in the process.
4. Use Checklists
Bookkeeping involves a series of connected steps and missing out on even a single step can prevent you from achieving the desired output. No matter how experienced you are, it is always advisable to keep checklists or to-do lists for marking the task completion.
The key bookkeeping tasks should be completed at the following intervals:
- Recording invoices
- Recording cash transactions
- Following up credit customers
- Preparing bank and account reconciliations
- Sending reminder letters to credit customers
- Preparing various monthly reports
- Recording accounting adjustment entries
- Addressing errors and closing the books
- Preparing annual accounts
- Submitting tax returns
5. Minimize Cash Transactions
Regardless of the nature of your business, one of the key steps you can take to streamline your bookkeeping is minimizing the use of cash. Managing cash not only brings high handling and storage costs, but reconciling it is even more time-taking. While you cannot completely eliminate cash, for example, if you run a retail business, there are various initiatives you can take to encourage non-cash transactions. For instance, you can offer reward points or discounts for using cards or mobile payments. Your payment partner will directly provide detailed reports that can automatically be integrated with your bookkeeping software. This means your task is limited to investigating the discrepancies if any.
6. Keep an Audit Trail
As long as there is manual work involved, errors and mistakes will be inevitable. While correcting mistakes is not a difficult task in bookkeeping, you need to know where and how exactly they were made. For instance, if your period-end bank balance is different from what is mentioned in the bank statement, you need to know the root cause of the difference so you can correct the relevant account apart from the bank account.
Many bookkeeping software contains the audit trail feature. It is basically a chronological record of all the actions performed on a system. Using the audit trails, you can correct the error at hand and learn lessons to avoid repeating the same mistakes in the future.
7. Seek Professional Help
If you do not have an accounting background, you may have been making the process overcomplicated. Even if you do not need a full-time bookkeeper, try engaging an expert to review your processes and streamline them as much as practically possible. If your data is scattered all across different spreadsheets, if you spend hours and hours making manual entries and if you always find discrepancies in the final bank balance, it is time to seek professional advice. Many business owners are surprised to see how easy bookkeeping is once the processes are streamlined. A small upfront cost can set you on the right track to expand your business and streamline bookkeeping activities.
With the advancement in technology and availability of AI-powered software programs, bookkeeping isn’t as complicated as it used to be in the previous decades. However, if you are still using outdated methods that rely on paper-based records, lack of integrations, manual data entries, cash-intensive operations and lack of audit trails, you are doing it all wrong. Use a recommended bookkeeping software program for your small business and let it take care of all the worries so that you spend your productive time on growing the actual business.