Bookkeeping is one of those things - it can seem repetitive when it doesn’t mean anything to your business OR it can be an absolute time-saver to your team and processes if done efficiently.
In a previous blog, we talked about why good bookkeeping is essential to better understanding your business. But how can you improve on it if it isn’t already ‘good’? Here are our top tips for making your bookkeeping top-notch and working towards reports that help you make effective decisions about your business (not just ones you file away!).
Ask yourself, how often do you do your bookkeeping? Is it once a year when you get a letter from your accountant to prepare the annual accounts and tax return? Or is it every three months because you need to prepare your VAT return? Are you stressed just thinking about it the thought you get every time you sit down to tackle it - “why did I leave it this long?!”.
If you keep up with your bookkeeping frequently, you aren’t allowing the transactions to build up. You might even find that it begins to take you less time overall, and be more accurate. The transactions will be fresher in your memory too - you’ll spot unrecognisable ones quicker and be able to address them accordingly. Not many of us can remember what we spent our money on last month, never mind 6 months ago! Imagine the headaches you’ll face reconciling a handful of transactions you cannot recall.
You should be doing your bookkeeping at least once a month. In fact, the more transactions you have in a month, the more frequently you should be doing it. This could be weekly or on a recurring day of the month. I.e. every Thursday afternoon, you could block out your diary solely for bookkeeping. Once you get into a routine of doing it you might even find the task to be less cumbersome (believe it or not!).
If you have decided to prepare your bookkeeping weekly, don’t be afraid to switch this to daily bookkeeping if you have a busy period. For example, if you have just issued hundreds of sales invoices and want to keep on top of who has paid you, it may benefit to check this every day for cashflow purposes.
In a world before digital software, we used to reconcile receipts and do our bookkeeping on paper. Now that accountancy software has improved over the past 15 years, we can save much more time as business owners. You can process receipts and reconcile bank transactions almost without all the paperwork. Cloud-based software such as Xero and apps such as Hubdoc, Dext or Auto-Entry that integrate into Xero help make bookkeeping a lot easier (and quicker).
Apps like Receipt Bank, Hubdoc and Auto-Entry allow business owners to upload their purchase invoices and receipts to a centralised system. Within these apps, you can set up rules for certain suppliers or shops to allow for more consistency within Xero and reduce the time spent coding up the transactions. These transactions can then be published into Xero so the bank transactions can be reconciled against the transactions.
Within Xero, you can create bank rules for recurring transactions such as bank interest received, bank charges and monthly loan payments. You create the bank rule based on the bank line details, and Xero will apply the bank rule you have made. This will again reduce the time spent on bookkeeping and improve accuracy.
Word of caution on these points. You must spend the time initially to ensure that the transactions are being coded correctly. You should review your bookkeeping once you have prepared. Ensure there are no miscoding or duplicated transactions - you may have uploaded the receipt to Receipt Bank but then applied the bank rule to the transaction in the bank account and, as a result, you have the cost twice in your accounts.
We see errors commonly occur when several people are involved in the bookkeeping process with no rules/procedures set in place. We recommend that one person does the bookkeeping so that the coding is consistent. If you do have more than one person working on the bookkeeping, ensure that you have clear procedures regarding who is doing what. For example, you could have one person responsible for the sales-related items, and another person dealing with company purchases and receipts.
You should also review your bookkeeping or bookkeeper's coding to ensure accuracy and consistency. Doing this review monthly will help you find any errors and help you better understand your business results.
Don't be afraid to ask your accountant any questions you may have when preparing your bookkeeping. Even though they might not do your bookkeeping, they may be helpful with transactions like a new loan, or when you face issues, i.e. you have paid a supplier twice. An accountant can often or not support you by either making the correction or talking you through how to fix the issue.
We like to be on the front foot with our clients and often jump on to help them with issues on Xero too. This also allows us to look at how the business is performing and be more proactive. We believe robust bookkeeping is valuable, especially if you are looking at hiring a Finance Director in future.