Want to ensure your small business bookkeeping is correct? Here are Irene’s top bookkeeping tips for small businesses:
Keep clear records
Long story short, document everything! Inland Revenue requires you to keep accurate business records for seven years. These records include everything from bank statements to invoices to bills and receipts; the requirements extend further if you are employing staff to their time sheets and wage records.
While one of the main drivers for this may be ensuring that you’re meeting the legal requirements of running your business, keeping on top of your business records will ensure you always have ready access to information as you need it. For example, say you purchased a new office printer 10-months ago that suddenly dies – rather than wasting your valuable time hunting out that pesky receipt so you can take it back to the store you purchased it from, you will know exactly where to find the receipt.
Top tip: the text on thermal receipts will fade over time. With the rise of camera-equipped Smartphones, it’s never been easier to ensure you always have a copy of these receipts – it’s as simple as taking a photo. Even better, cloud-based accounting systems like Xero, have apps which will allow you to attach the receipt photo directly to the transaction. This will save you even more time in the future if you ever need to find it! See point one in my Xero tips blog to learn how to do this.
Keep everything up to date
Have you ever been in the situation where your GST is due tomorrow, and you haven’t even looked at your accounting software since the last time you filed GST? Let me tell you – you are not alone!
Funnily enough, I would not recommend this approach. Not only will it leave you feeling slightly (or more) overwhelmed, but also, if you are rushing to get your accounts up-to-date, you are far more likely to make errors.
My recommendation would be to set aside time each week to update your accounts. By breaking your bookkeeping up into bite-sized pieces, you don’t even have to stress about GST (or other) filing dates as they draw closer. The big bonus of this being that you’re no longer taken away from other money-producing tasks you could be doing to get everything up to date as these due dates roll around. Additionally, and equally importantly, you will now have the ability to regularly review how your business is tracking financially. Having this information will allow you to make better business decisions based on what is currently happening in your business, not what happened last month or even the month before.
Find a system that works for you
One of the most frequent questions I get asked as a bookkeeper is what accounting software I recommend. As mentioned in my blog on the 10 Best Online Tools for Small Business, I’m a big fan of Xero, and generally what I find when talking to clients, this is exactly what they need. However, I don’t believe that there is necessarily a one size fits all solution when talking about bookkeeping systems. I have clients that use MYOB and even Excel to manage their business accounts.
There are many factors which will influence what the best system is for you, including price, integration options, skill-level and software knowledge, to name a few. What is important is that the system meets your needs and provides you with the information that you need out of it.
Keep personal finances separate
This may seem obvious to some people, but you would be surprised at the number of personal transactions made through business accounts and business transactions made through personal accounts that I see each month. And to be honest, sometimes this is purely unavoidable – like the time I had to pay $10 using the business EFTPOS card to ‘break’ Gryff out of Doggie Daycare as I had forgotten my personal EFTPOS card (note: this was subsequently very clearly coded as ‘Drawings’).
But in general, business and personal need to be separate. There are a number of reasons to maintain this separation:
- It’s so much easier to keep track of what’s happening; therefore, saving you time trying to figure out what has happened each month.
- If your business is a company, there will be many reasons why you chose this particular structure, one of which will be having it as a separate legal entity from you personally and the benefits of limited liability this provides. If the company is ever in any sort of trouble in the future, you don’t want to give Inland Revenue any case to pierce the corporate veil, which may see you (and your assets) become personally liable. The easy way to avoid this – don’t pay for personal expenses through the business and pay yourself a salary or take regular lump sum drawings from the business.
ALWAYS invoice on time and track your income
You can’t track income without first raising the invoice. The first part of this tip is probably more relevant to service-based businesses but is also true for product-based businesses that have delayed payment terms (for example, not payment before shipment, but payment on the 20th of the month following).
Want to avoid cashflow issues? Always invoice on time. People don’t know what they owe you until you invoice them. They also can’t (or at the very least shouldn’t) pay you without an invoice if they’re in business (see the requirements in ‘Keep Clear Records’ above). The best way to keep getting paid is to invoice on time.
Top tip: If you raise an invoice, send it through to your client straight away. I recently received an invoice with a 7-day payment term the day before it was due. Fortunately, I was expecting it and had no issues paying straight away, but it could have been a little awkward if I was not expecting it.
The second part of this tip is for everyone – track your income. To be fair, you should be tracking income and expenses, but that’s a whole blog post in itself. Your income (or revenue) is a key KPI regarding the viability of your business. Is money coming in the door? Is that number stable? Growing? Shrinking? Keeping an eye on this will alert you to problems as they arise.
How do I ensure I’m invoicing on time?
In Xero, I have repeating invoices set up for all of my clients. On the same day of the month, Xero will generate and automatically send invoices to my service package clients. These invoices are never late. It will also generate draft invoices for my ad-hoc clients, which one of the Admin Army team reviews, updates hours, etc. and sends off on the same day.
How do I ensure I’m tracking my income?
On the same day invoicing is completed, I take a look at my profit and loss report for the month and input any income figures into a spreadsheet that I operate. I’ve decided on the key metrics that I want to measure – for example, I compare revenue from packages and revenue from projects, both to each other and against total sales. Also, as Admin Army is still very much a growing company, I’m tracking the growth as a percentage of each of these metrics as well. I then have a very satisfying line graph that magically updates as I enter data and I know immediately if things are going UP as they should be.
If you’re interested in seeing an example of my spreadsheet and talking about how you can track your income using something similar, feel free to schedule a free 30-minute consultation with me to talk about your requirements. I will then update it to match your business and send it through to you.
Invest in a professional
- Want to ensure you’re doing your keeping clear records?
- Want to ensure that everything is kept up to date?
- Want to find a system that works for your business?
- Want to keep your personal finances separate?
- Want to make sure you’re invoicing on time and tracking your income?
The easiest way is to invest in a professional bookkeeper!
So, you’re reading this on my website, and it’s probably the time when I’m meant to be giving you the ‘sales pitch’. The reality is that there are a lot of great and not-so-great bookkeepers out there. Unfortunately, I’ve heard some horror stories about bookkeepers in the last few months that do no credit to the industry.
With that in mind, how do you make sure you get a great one that you can trust? The best way in New Zealand is to check that they’re a member of the New Zealand Bookkeepers Association (NZBAI).
The NZBAI is NZ’s only professional body dedicated to the bookkeeping industry. It provides its members with access and guidance to educational and compliance resources. This gives you the certainty that you’re dealing with someone who will provide you with a high quality and expert service.
Incidentally, I am a Certified Member of the NZBAI and all Admin Army bookkeeping staff are also either Certified Members or currently working towards their certification. This is Admin Army’s commitment to ensuring we are bookkeepers that you can trust.