Every business generates a huge amount of paperwork, whether that be in digital or physical format. The key to having an effective bookkeeping system is to not push the paperwork to one side, but to handle it on a regular basis and follow a few simple processes.
Believe me, it’ll save you the headache when you come to file those taxes!
1. Sales Ledger Management
Whether you’re an established business or a start-up entity, you’ll need to have a solid sales ledger process. For every bit of income, you should have a sales ledger entry. This can be within an accounts software package, on a spreadsheet or an entry in a physical ledger book.
The entry is posted when the sale is made – whether it is a cash or a credit sale. Cash sales can be marked as paid immediately, credit sales marked as paid when the monies are received. Most software packages have a direct bank link function making it easy to mark sales invoices as paid when funds are received, but a daily check of the previous day’s bank statement is just as effective for a manual ledger.
2. Purchase Ledger Management
Alongside your sales ledger, should be your purchase ledger. This is most likely to be kept in the same format as your sales ledger – within an accounts software, a spreadsheet or a physical ledger book.
For every purchase, there should be an entry in the purchase ledger whether it is a cash, card or credit purchase. Don’t forget to ask for the receipt or have an invoice sent to you. This is your evidence of that business purchase. The tax man will want to see them so get them as soon as you make a purchase.
Lets face it, no-one enjoys filing. But keep it up to date and you will be thankful at your year end and you’re filing those taxes. You should have a piece of filing for every sale and every purchase – digital or physical, they all need to be filed.
The simplest way to file your sales ledger is digitally by document number – as you are issuing these, the documents should be in numerical order and easy to file. One secure folder on your business computer drive is all you need. If you have regular customers you could have a folder for each of these so the invoices are easy to find.
For purchase ledger, there are several filing options – either alphabetically by supplier and then in date order under each supplier, or you could give each of your invoices your own reference and file them in that numerical order.
4. Cash Management
Sounds obvious, right? But do you really know your cash status? What are you due to pay out over the next 30 days? How much do you expect to receive over the next 30 days? What do you anticipate being the closing balance at the end of the month?
A cash forecast that is updated with actual results each month will help you to manage the cash in your business. Many accounts softwares have a cash forecast function, but they are also simple to create in a spreadsheet.
A start-up business may not have the most accuracy at first, but as trading patterns become obvious, the accuracy will improve. It is still important to have the forecast in place though to monitor the income and expenses each month.
5. Monthly Management Accounts
If you’ve read my blog on Management Accounts, you’ll know why I believe them to be one of the most important elements of your monthly bookkeeping process. If you haven’t read it yet, why not check it out!
These are your opportunity to look at your business as a whole. Take the opportunity and don’t let it slide down your ‘to-do’ list. They should be including your Profit & Loss for the month alongside any budget that you have for the year along with your Balance Sheet and any other information that may be useful to you each period.
The P&L and Balance sheet are an overview of your bookkeeping for the month. Take a look at the nominal accounts – do they look right? Is anything looking like it may have been mis-posted? How are your Gross and Net Profit lines looking compared to your expectations?
6. Time Management
Every business has its own internal deadlines to meet but there are also the higher level deadlines that are required for tax reporting. Taking the time each week to get your bookkeeping accurate will help you to be ready for these deadlines without the feeling of dread.
Be aware of the dates that affect your business and diarise them. Pop a reminder on for a month prior so you can be sure to set time aside to be ready.
And of course, don’t be afraid to delegate.
As your business grows, you’ll want to spend more time ‘on it’ and less time ‘in it’. That’s where outsourcing is the perfect stepping stone between doing it all yourself and having an in-house finance team.
If this sounds like you – why not see how The Numbers Assistant can help?