Basic Bookkeeping Strategies: Part 2
Deciding how and when to track your transactions can be a task within itself. Typically this decision is made before hand, but I’ve know quite a few business owners to make spur of the moment judgments about how to manage their data. The best approach, of course, would be to create a system and adhere to it. But what is that system, and how do you determine what it should be?
How do I track this stuff? Manual, software or online.
Most businesses prefer to have ownership of their financial data, meaning they maintain full access at their own location. This method would require the purchase of expensive software, knowledge of its use, and maintenance of the system. At least two individuals would be needed to fully operate this system, one to manage the input of data and the other to manage its function. Or perhaps only one overworked individual is needed to manage everything (smile). However, this scene is changing with the convergence of virtual businesses. Most realize the cost savings of having someone manage their files for them completely remote (via the internet). Company data is delivered by fax, email or courier, and updated at the location of the service provider, or the files are managed through remote access, directly linking computers through the internet. The industry is favoring the latter because it’s cost effective. Savings on the cost of office space, employee wages, training, and system maintenance, all contribute to the popularity of the virtual process. At this point can you imagine anyone still using manual spreadsheets? Let’s hope not.
Basic Bookkeeping Strategies: Part 1
Bookkeeping involves the systematic process by which you gather and record financial data. This may appear very simple, but actually it can become a very complex process. The setup and management of your files will be determined by the level of expertise of the individual(s) involved. My goal through the next three articles is to share some of the basic steps in creating an effective system of bookkeeping.
Organize your data-why can’t I use the shoebox method?
The days of the shoe box method are long gone. With current technology trends, there really is no excuse for today’s business person to be disorganized. Simply put, your first responsibility is to make sure that all items are properly categorized. For example the major components of a business’s finances are assets, liabilities, revenue, and expenses. Keeping it very basic, I’ll explain each category:
Assets = what you own
Liabilities = what you owe
Revenue = what you’ve earned (income)
Expenses=what you’ve paid
Congratulations! You have just passed accounting 101.
Now in knowing this basic information, an effective bookkeeping system will make sure that all transactions are properly recorded in its appropriate category. Depending upon what type of system you use, before you begin entering any data; separate all your items into categories. You can use the above list as a guide. Most likely your source documents will consist of receipts, bank statements, check stubs, & invoices. This will save you time in advance to entering your data.
5 COMMON BOOKKEEPING BLUNDERS TO STAY AWAY FROM
No one likes to deal with errors, but we must. My approach is to acknowledge the error, find a solution, and document to prevent future mistakes. But let’s face it, most like to play the “blame game”, where we get stuck in the cycle of the error itself. So, this article will deal with 5 of the most popular bookkeeping blunders you should watch out for.
Blunder #1 – Stop mixing personal and business expenses in the same checking account. I think this one speaks for itself. As much as we would like to argue to the contrary, that vacation you took to Brazil was not a business trip.
Blunder #2 – Do not post date checks. Don’t write that check if you don’t have the money. Rubber money does not bode well with banks and vendors.
Blunder #3- Don’t pay your bills late if you can help it. Try to keep a good credit standing. If you’re in a cash crunch, call your vendors and work out an alternative plan. They will be more apt to work with you as long as you keep the lines of communication open. Trust me, they will appreciate your honesty. In this case SILENCE IS NOT GOLDEN!
Blunder #4- Everyone is not an independent contractor. Educate yourself on the difference between independent contractors versus employees. You could save yourself a lot of time and heartache during tax season.
AND THE BIGGEST MISTAKE OF ALL…………………………….
Blunder #5- CASH TRANSACTIONS. If at all possible, please don’t make any cash transactions in your business account. This is an accounting nightmare, because generally you will not keep the receipt or properly categorize the transaction. All transactions should be made by credit card, check, money order or other method. Documentation is a must, and it’s hard to trace cash transactions without the proper receipts.
Partnering for your success!
Jacqueline E. Ford
Financial Strategist
SMALL BUSINESS BOOKKEEPING-Why is it necessary?
Many small businesses today start out with such enthusiasm, innovative ideas, and the determination to become a success! I remember when I first started my business. I took a class in entrepreneurial basics, to learn the necessary tactics in being a successful business. One of the first concepts we learned was to build a team of professionals, that of course, included an accountant or bookkeeper. Well needless to say, the first response that the classroom had was, “but we can’t afford these services starting out”. So the next obvious solution was to either perform these services ourselves or postpone them all together until the necessary funds became available.
We must stop the madness now! As small business owners, we tend to look for shortcuts that eventually cost us in the long run. It makes better business sense to invest upfront in these important services, than to suffer the consequences of not doing so. Managing your “books” or financial documents, is essential in determining the financial status of your enterprise. Without it how else when you know when to pay the bills, or collect from customers, or even apply for that much needed loan to increase your working capital. Actually, creating a forecast of your financial blueprint in advance is key to the planning and developmental stages of your venture. Starting out organized is the best method, and sets the tone for the direction of your future operations. So let’s get busy. Hire the professional to outsource, or get the necessary training so that you can do it in house. Whatever your options dictate, DO IT NOW!
Partnering for your success!
Jacqueline Ford
Financial Strategist
What is Bookkeeping?
Welcome to this month’s discussion on small business bookkeeping. Over the next several weeks, I will post articles pertaining to bookkeeping theory & practice.
As a successful business owner, I know the daily challenges of running an organization, and what it takes to stay on top of issues affecting your industry. My goal here is to make this process easier for you. How, by passing on the knowledge and the experience I’ve gained over the years. I will provide weekly issues that cover various topics ranging from creating an effective system, managing your books, to gaining valuable information on how to manage your books better. So let’s get started, okay.
WHAT IS BOOKKEEPING
The best place for me is always at the beginning. So our premier topic is “What is bookkeeping?” For most people, we tend to be very challenged when dealing with our own finances, let alone, our company’s finances. But in reality, we all are, on some level, financial strategist, whether we’re good at it or not. So think for a moment, on a daily basis, we are counting our money, determining how much we have, and figuring out where to spend it. There you have it in a nutshell! The whole process of keeping track of our financial picture boils down to basic bookkeeping. So, to give it to you in a more formal definition, bookkeeping is “the process by which you record transactions in order to monitor an entity’s financial position”.
IT’S EASIER THAN IT LOOKS
Believe me when I say, “it’s easier than it looks”. Simply keeping track of how much money you bring in versus how much money you spend, and what you spend it on, is the foundation of bookkeeping. When you are balancing your checkbook, paying your bills, making decisions about borrowing money, considering whether you need additional income; all this activity is involved in bookkeeping. Of course, most companies have a more formalized system, but I think you get the gist of it here. There are so many processes that exist to create an effective bookkeeping system. The goal is to choose a system that benefits your method of operations.
NO MORE DRAMA
Fear comes from the unknown. Imagine being able to make key financial decisions because you are confident in knowing what resources you have available to you. Having a well defined, structured process of bookkeeping will not only give you peace of mind, but it also allows you the freedom to be able to focus on other important business issues. Remember, success comes from being organized and prepared. Let’s minimize those surprises and prepare for success.