For businesses, poor bookkeeping isn't just inconvenient — it can be disastrous in many ways, all stemming from the consequences of financial mismanagement that only worsen over time.
To succeed as a business owner, you need to make the most informed decisions that you can at all times — something that is essentially impossible if you don't have total visibility over your finances. But the good news is that cleaning up your business's books likely won't be nearly as difficult as you may be assuming.
Oftentimes, success to that end is less the result of any one major move and is more about a series of smaller, more strategic ones. By following just a few key tips and best practices, you can get your finances in order and make sure that your organization stays on the right track in 2020 and beyond.
One of the major reasons why most businesses run into trouble with bookkeeping has to do with the fact that they're not nearly as proactive about it as they should be. On the rare occasion that they do take a look at their books, everything is woefully out of date — thus forcing them to constantly play catch-up instead of devoting the majority of their attention to more important matters like cashflow management.
Therefore, one of the most effective ways to clean up your business's books simply involves keeping everything up to date at all times. Begin by conducting your own internal audit of all of your outstanding bookkeeping tasks. Not only will this allow you to gain a better perspective over the current status of your records, but it will also help you develop a better, more specific strategy to keep everything in order all throughout the year.
Not only will this save you a tremendous amount of stress and frustration at the end of the financial year, but it'll also significantly reduce the amount of work you have to do on a regular basis, too.
Along the same lines, it's also important to note that no two businesses are created equally — and that is especially true in terms of your accounting process. To truly clean up your business's books, you need to dive beneath those messy or incomplete records and examine the legitimate issues that they may be creating as a result.
Think about whether you're experiencing a number of common issues, including ones like:
These types of problems are often the result of poor accounting records, but they're rarely the cause. Therefore, it's important to determine exactly what issues you're facing so that you can come up with specific solutions to address them moving forward. Once you’ve identified the root cause of an issue, you’re better positioned the specific problem, while also getting a better handle on your books overall.
In other words, don't assume that simply cleaning up your business's books will make something like excessive business expenses go away. Address those exorbitant expenses, and your accounting records will naturally improve as a result.
Another problem area for many small businesses in particular has to do with cashflow management. You need to make sure that the actual cash flowing into and out of your business matches your bank records — something that is critical for paying both your suppliers and your partners on time.
As a rule of thumb, cash reconciliations should be done at the very least on a monthly basis for each active bank account you have. For those higher volume accounts, you'll likely need to increase the frequency. Keep in mind that following up with your customers on any and all outstanding invoices is an important part of this process, too.
Finally, understand that cleaning up your business's books is not necessarily a road you have to travel down alone. If you've always attempted to do everything yourself and are running into problems like those outlined above, it could be a sign that professional help is needed — and there is absolutely nothing wrong with that.
Finding a professional bookkeeper or other third-party accounting partner can help you save an enormous amount of time, all while helping to mitigate your losses and avoiding fines and penalties. An accounting partner can help you examine current and past financial records to get a better idea of any problems you're facing, while also ensuring that all regulations and procedures are being followed.
Beyond that, an accounting partner can also bring you what is ultimately the most important benefit of all: Once they've identified and resolved any outstanding issues, they can make sure that you're equipped to keep those books clean moving forward.
Gordon W. McNamee, CPA writes for CountingWorks, an accounting news and advice website. Reach him and his team at [email protected].
About Gordon McNamee, CPA
Gordon McNamee, CPA is an Upland based CPA who helps with small businesses, individuals and homeowner associations. A former IRS agent, he has been a CPA since 1991 offering his expertise in individual, corporate, trust, estate and payroll taxes. A specialty of his is HOA tax planning and preparation. In addition, he provides accounting and financial statements for both individuals and businesses.
