Bookkeeping is a very important aspect of a business but often overlooked by business owners who are more focused on driving sales. Proper bookkeeping ensures that financial information are recorded timely and accurately, thereby enabling useful financial information to be readily extracted for the following purposes:
- Monitoring and evaluating the performance of businesses
- Budgeting for future periods
- Preparing financial statements for laying at the Annual General Meeting (AGM)
- Preparing income tax returns (Form C / Form C-S)
- Obtaining bank financing
- Pitching to potential investors
Here are 10 things that can help with your company’s bookkeeping practices:
1. Do a bit of bookkeeping everyday, instead of waiting till the documents pile up
Bookkeeping generally involves the recording of financial transactions, posting debits and credits, generating invoices, maintaining and balancing ledgers and preparing bill and salary payments. It inevitably involves filing of supporting documents, which can be a chore when done in bulk. Start early and make it a habit!
2. Create a filing system and file periodically
Having documents properly filed will enable quick access to these documents for recording and future references. As a guide, businesses should have the following sections/dividers in their filing system:
- Bank statements
- Bank reconciliations
- Sales invoices (that have been paid)
- Accounts receivables (Sales invoiced but unpaid)
- Purchase invoices (that have been paid)
- Accounts payables (Bills received but unpaid)
- Employee information
- Company information
3. Use a corporate bank account, so that personal and business finances are not mixed together
Some business owners make this mistake of paying out of their own pockets. If these payments from personal accounts are not properly tracked (which is the case most of the time), it will be difficult to separate the personal and business payments when the time comes. As a result, the business expenses recorded might be inaccurate.
4. Pay using the company’s cheques, corporate card or by bank transfer
When payment is made via cheques, corporate card or by bank transfer from the corporate account, the company’s payments for expenses are automatically presented in the monthly bank statements. Write relevant information on the cheque butt (e.g. payee name, purpose and amount) and in the comments field for the bank transfer. This will help in updating the accounting software or the cashbook.
5. Retain purchase receipts, especially those that you pay by cash or out of your own pocket
Often, purchase receipts that you receive from shops are kept away for a long time and may be forgotten. Be sure to file them promptly, no matter how small the amounts might be, as these expenses could add up. Prompt filing will ensure that all your business expenses are recorded for and that you are not artificially inflating your profits and paying more taxes than you should!
6. Mark bills as “paid”, write down the payment method and date, then file them
This ensures that multiple payments of the same bill are not made, and that creditors don’t come chasing after your company. After payment has been prepared, the payment and invoice details should be updated to the respective ledgers.
7. Maintain a daily cashbook
Tracking the running balance of the bank account in a cashbook gives an immediate overview of the cashflow situation that has not been captured by the bank, as deposits and payments take time to clear. This also prevents issued cheques from bouncing due to unexpected insufficient bank balance.
A cashbook can be maintained in the “Cash” account of an accounting software or in a spreadsheet. Suggested fields are date, purpose, reference, receipt amount, payment amount, balance and payment category.
If you are not using an accounting software, maintaining a cashbook in the form of a spreadsheet will also help in the bank reconciliation and preparation of financial statements and analysis.
8. Use an accounting software, unless you are good with spreadsheets and accounting
There are several ledgers to be updated, such as Cash, Accounts Receivables, Assets, Accounts Payables, Expenses, etc., just to name a few. Depending on the nature of the business, that could be many more. Maintaining these ledgers in a spreadsheet could become messy, so use of an accounting software is recommended.
There are many accounting software options out there then can help you with your bookkeeping and accounting. Some accounting softwares allow you to generates invoices as well. For small businesses, do check out this post that compares accounting softwares: http://www.businessnewsdaily.com/7543-best-accounting-software.html
9. Seek professional help if you do not have such expertise or time
When the volume of transactions becomes too large, you may need to hire a dedicated bookkeeper or accountant to manage your financials. For companies that are on a small budget, you may engage an outside bookkeeper/accountant who can help on a periodic basis.
10. Keep your records for at least five years
The Inland Revenue of Singapore (IRAS) and the Companies Act require that businesses keep their business records and accounts for a period of at least five years.