No one likes a mess. Messy teenage rooms, dishes in the sink, wet towels on the floor… all annoying.
But, as a business owner, no mess is more frustrating than messy accounts.
Like those other household messes, it can be easy to let your accounts fall into disarray. But, you shouldn’t! Accurate financial records are essential for any business.
So, what can you do if your books are full of discrepancies and look like a dog’s breakfast?
Well, all hope is not lost. You can tidy up messy accounts and discrepancies, and this is how:
How to Fix Messy Accounts and Discrepancies
What Constitutes Messy Accounts?
Wondering if your accounts have fallen into the messy category? Here’s a few signs that you could be in dangerous territory:
- You have lots of unreconciled transactions and you aren’t sure what some of them are for
- You’ve been using your business accounts for personal spending and vice versa
- There are no receipts or proof of purchase for money you have spent
- Your coding is not consistent
- There are discrepancies between the balance in your accounting records and your bank balance
- Inventory records don’t match or add up
- You are too scared to touch anything in case you make the problem worse
If you can relate to any of these things, then it is time to get your accounts mess cleaned up now!
The Problem with Messy Accounts
So, your books are a bit of a mess, what’s the big deal?
Unfortunately, it is quite a big deal. While it might seem boring and time consuming to stay on top of your books, it can cause real issues in your business if you don’t.
Here are just some of the problems that messy accounts can cause:
- You don’t know how much money you are making or spending each month
- Therefore, you can’t possibly know if your business is profitable
- Receipts can get lost, meaning you don’t have the legal records required
- You know there is a problem, so don’t log into your accounting system, allowing the issues to compound further
- You could be spending more than you are earning
- There could be a looming cashflow issue in your business that you’re unaware of
- There are opportunities you might miss as you don’t know if you can invest or not
- You may incur late filing penalties with Inland Revenue if you’re not completing filing requirements in a timely manner
- It may cost you more in accounting fees for year-end accounts work
Basically, if your records are not tidy and up to date, you can’t possibly know what kind of financial position your business is in. So, you can’t make informed decisions and can’t forecast for growth.
Fixing Messy Accounts and Discrepancies
Here are some steps you can take to get your accounts in order now:
Step 1: Determine the Extent of the Problem
It’s time to stop burying your head in the sand and prevent the mess from worsening. Gather your financial records together (whether online, in a spreadsheet or in a shoebox) and establish what you are working with.
Get yourself set up with a cloud-based accounting system like Xero or MYOB so that it will make the job of keeping your books accurate easier. If you are already set up, familiarise yourself with the system so that you can use it regularly going forward.
Step 2: Separate Business and Personal Spending
Set up a business-specific bank account if you don’t have one already. This allows you to keep your business and personal spending separate. If you already have a business bank account, commit to only using it for legitimate business purposes.
If you need to utilise business funds for personal reasons, either take the funds as drawings or make yourself an employee of the business so that you can pay yourself for the work you do. Not sure which method is best for you? Then, have a chat with an accountant or tax agent.
Step 3: Track Incomings and Outgoings
You don’t want to fall into the trap of messy accounts again, so you want to start tracking all the funds associated with your business from now on. This is where your accounting software is going to come in handy. It makes it easier to track the money coming into your business and the expenditure going out.
You can connect most accounting systems to your bank accounts so that the transactions are imported automatically. This saves lots of time and reduces the risk of errors as you won’t have to input the data manually.
Step 4: Get Reconciling
Now that you have your good habits in place for operations from now on, it’s time to go back and deal with the mess of transactions that have piled up.
It’s time to get reconciling. Go through each accounting record individually, ensuring the amounts match your bank statements’ actual income and expenditure. Attach any relevant receipts or invoices to each record as you go.
Be conscious of where you are coding each transaction so that the costs and revenue are reflected correctly. Your accounting system will have default codes set up for typical business expenses, but you can set up specific codes if needed.
Step 5: Fix Any Discrepancies
If all goes well, the records in your accounting system should match the records on your bank statement. Anything that doesn’t match is a discrepancy and must be corrected.
If you are confident, you can make these corrections yourself. But, if you aren’t sure how to fix the discrepancies quickly, then it is time to move on to step 6!
Step 6: Get Expert Help
While you might be able to sort your messy accounts yourself, it will be time-consuming. And as a busy business owner, you might not have a couple of days to dedicate to this task. Or, you might not be a numbers person, and the thought of trying to sort out the mess makes you want to hide under a rock.
Whatever your reason, calling in an expert is going to help immensely. Not only will they be able to do the job swiftly, but you’ll also have peace of mind that it will be done right.
Here at Admin Army, we love to wage war on messy accounts! Our team of expert bookkeepers are on hand to help you tidy up any unsightly books so that you can get an accurate picture of how your business is performing.
Chat with our team today and take your first step towards books that are drill sergeant tidy!