In a previous blog, we highlighted why good bookkeeping is essential for you to understand your business, but we did not discuss how to improve your bookkeeping once you have started. In this blog, we will highlight how you can improve your business's bookkeeping and work towards getting reports that you can use to make decisions about your business.
Ask yourself, how often do you do your bookkeeping? One a year when you get your letter from your accountant to prepare your annual account and tax return? Or every three months when you need to prepare your VAT return? Is this stressful, and you wonder why you leave it this long every time?
You should be doing your bookkeeping at least once a month, and the more transaction you have in a month, the more frequently you should be doing it. When doing the bookkeeping monthly, you are not allowing the transactions to build up, and you will find that overall you will take less time, and it will be more accurate. You will also see if there are any transactions you do not recognise and address these accordingly.
The more transactions in the month, the more frequent you should be doing your bookkeeping. This may be weekly such as every Thursday afternoon, you sit down and prepare your bookkeeping. This will get you into a routine, and you may find the task to be less cumbersome.
If you have decided to prepare your bookkeeping weekly, do not be afraid to switch this to daily bookkeeping if you have a busy period, such as you have just raised 100's of sales invoices and want to keep on top of who has paid you.
Accountancy software has improved over the past 15 years to makes it easier for business owners to process their receipts and bank transactions. This has come from moving to cloud-based software such as Xero and the apps such as Receipt Bank or Auto-Entry that can integrate into Xero.
Apps like Receipt Bank 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 reoccurring 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 improving accuracy.
Word of caution of 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 it to ensure there are no miscoding or duplicated transactions as you may have uploaded the receipt to Receipt Bank but then applied the bank rule to the transaction in the bank account as a result, you have the cost twice in your accounts.
We see that errors occur when several people are involved in the bookkeeping 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 with who is doing what. For example, one person deals with the sales-related items, and the other person deals with the purchases and receipts.
You should also ensure that you review your bookkeeping or bookkeepers coding to ensure accuracy and consistency. Doing this review monthly will help you find any errors and help you better understand your business as you are looking at your results monthly.
Don't be afraid to ask your accountant any questions you may have when preparing your bookkeeping. This could include transactions like a new loan, or you may have paid a supplier twice. Reach out to your accountant, and they can assist you with either making the correction or talking you through how to fix the issue.