For practically every business, performing fast and accurate accounting is a matter of utmost importance.
When your books are correct they are a window into the company’s financial performance. The numbers tell a story—whether you are swimming, sinking, or simply treading water. Equipped with this information, business leaders are better positioned to make prudent decisions about the future direction and initiatives of their company.
But, when the numbers are inaccurate, when you are forced to rely on faulty information to guide your decisions, that is akin to piloting a ship blindly without a compass, astrolabe, or even the stars in the sky.
Put simply, if you want to succeed, ensuring the accuracy of accounting is paramount. Today, we will discuss actionable methods you can deploy to improve your bookkeeping.
1. Record Every Expense
As a budding business, you must categorize every business expense alongside cash flow tracking. Doing so improves visibility and better positions the business to maximize taxable write-offs and credits.
Naturally, how you document these expenditures depends on your accounting method.
With accrual accounting, revenue is recorded when it is earned—after the customer has received their goods or service—not when it is paid. As a result, the books will cover accounts receivable and payable so that you have a more accurate understanding of the company’s profitability and cash flow.
With cash basis accounting, you only record transactions that have been paid out or received.
While a cash basis method may work early on, as you grow, it is better to opt for an accrual method. Doing so offers more accurate long-term visibility over the company’s financial health.
2. Save Your Receipts
This should go without saying, but it bears repeating—accurate bookkeeping goes hand in hand with rigorous documentation. As the IRS notes:
“It is important to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.”
What records should you hold onto?
Important documents you should keep include:
- Purchases
- Business expenses
- Gross receipts
- Travel, entertainment, and transportation expenses
- Assets
- Employment taxes
Fortunately, today, high-quality accounting software can scan, upload, and automatically categorize all of a business’s relevant receipts.
3. Use Accounting Software
If you still perform manual-based accounting, the time to change is now. Even rudimentary excel spreadsheets lack the necessary sophistication that modern businesses require from their accounting team.
Manual data entry is inefficient, prone to human error, and, most importantly, it grants precious little control and visibility to the company’s financial leaders.
Such a method saps time and resources, contributes to employee dissatisfaction, and jeopardizes regulatory compliance.
But, as mentioned, there are modern accounting technologies designed to suit businesses both large and small.
Top options include Intuit QuickBooks, Oracle NetSuite, ZoHo Books Accounting Software, and GoDaddy Online Bookkeeping.
Generally speaking, these programs can empower your business by:
- Promoting data accuracy
- Creating accounting automation
- Generating financial reports
- Saving time on data entry
- Tracking income and expenditures
- Sending and paying invoices
- Simplifying payroll
- Providing actionable insights
- Streamlining tax filing
4. Keep Personal and Business Expenses Separate
In the early stages of a company’s lifecycle, there will often be bleed over between the owner’s personal finances and those of the company. But this muddies the financial waters, making it much more difficult to accurately gauge the company’s status.
While comingling of funds may provide convenience early on, you will save yourself from serious accounting headaches if you pull the bandaid off now and maintain two completely separate accounts.
By setting up an account that is solely dedicated to the company, you can:
- Better track your business cash flow – This makes it easier to paint a picture of company cash flow, manage a balance sheet, and perform financial forecasting.
- Increase accounting efficiency – When tax time comes, it will be much easier to identify and provide the relevant financial data if you do not need to sort between the varied expenses.
- Protect you from legal liability – If your company’s financial records are inaccurate, that then negatively impacts tax filing, which could expose the company to audits. Furthermore, if you are registered as an LLC or corporation, commingled business and personal finances could eliminate your limited liability status.
5. Back Up Your Data
What would happen if a natural disaster struck or if a hacker gained access to your network?
Would your financial and accounting data be safe?
With cyberattacks on the rise, backing up your data—ideally to a hyper-secure cloud—is just smart business. It is a way you can protect your company from potential calamity.
By maintaining copies of all your financial documents, you can sleep soundly knowing that your records are secure even if the worst should happen.
6. Outsource Your Accounting
Every business reaches a stage in its growth where the task of accounting becomes too big and important to be handled by an amateur.
Eventually, you will need to hire a professional whose sole job involves maintaining the books and ensuring that the financial records are accurate and up to date.
While you could hire an in-house accountant, doing so tends to be cost-exorbitant. To begin with, this requires a lengthy hiring process, including interviewing, onboarding, and training. Also, in addition to paying a salary, you will have to cover their benefits.
These inherent costs are why many growing companies prefer to outsource their accounting to specialists that are custom-assigned to the job based on their expertise and previous experience.
