- Clean and organised bookkeeping and accounting invoke the same feeling in you, as seeing a perfectly stacked shelf by Marie Kondo.
- According to a study by Score Association, 40% of business owners feel that bookkeeping and taxes are the worst part of doing business.
- Accounting is the single-most-important exercise that helps record, organise, sort, analyse and report the financial transactions of any business. As a result, it will uncover actionable insights that will help you grow your business.
- Accounting forms the very base of your financial value-chain. If the bookkeeping of your business is incorrect, then it has set-in a bad precedence for your company books.
What are the steps to follow?
1. Open a Bank Account
Open a separate business account for your business. Intermingling your business transactions with your personal ones may land you in trouble. It helps in easy bank reconciliation for filing returns.
DR Pro Tip: Cloud accounting software like QuickBooks (QBO) and Zoho Books (ZB) are a huge boon. Linking them with your business account makes reconciliation effortless.
FYI With DR: Banks nowadays offer perks to business owners, from free Point of Sale (POS) machines to minimum balances, etc. So, shop around and check the fee structure and perks offered by various banks.
2. Track Expenses
All businesses keep a record (accounting papers) of business expenses that will help at the time of filing tax returns.
DR Pro Tip: ‘Expensify’ is an excellent receipt/expense tracking app that has integrations across cloud accounting software that makes pre-accounting a breeze.
FYI With DR: Online invoicing tools (Invoicely, QBO, Zoho Books, etc.) allow you to generate on-the-go GST friendly invoices.
Some documents that you should keep:
- Receipts and bills – For every expense, you must get a receipt and keep bills. Like for office supplies and utilities, work travel, work phone, etc., remember to retain the bill.
- Bank account statements – Businesses need to keep their bank account statements with them.
- Invoices and the proof of payments – It’s essential to keep all the invoices for the services you render and for proof of payment.
- Financial statement and tax returns – After you file tax returns, you should keep that record and maintain financial statements.
- Previous accounting files – If you have accounting data that was being managed remotely by an earlier vendor, then make sure, they give that to you.
3. Choose an Accounting Method
When you start a business, you must choose the accounting method for recording transactions. We have two commonly used accounting methods to record income and expenses – A. Cash basis and B. Accrual basis.
Under the cash basis accounting method, the income and expenses are recorded after the transactions are done. While on the accrual basis (also called non-cash basis method of accounting) the income is recorded when the sale is made and the expenses after they have been incurred.
FYI With DR: Most businesses prefer the accrual method of accounting. It provides a better picture of the financial results of the company. Therefore allowing users of the financial information to make more informed decisions
Budget is always linked with expenses, and expenses are part of any business. It is a process of allocating expenditures related to the business. With resources spread thin for most new businesses, have a budget for proper line items such as salaries, purchasing, marketing, communication, and rentals, which can help you with fund planning, and expenses.
One of the most overlooked aspects of businesses is pricing. Whether you are starting out or have been running a business, to determine pricing well, you need to get a handle on the costs associated with your product/service.
An efficient bookkeeping environment and cost-accounting can be a great litmus test for a good accountant and forms the base for your company’s future sales and growth.
FYI With DR: Fixed costs include depreciation, rent, property tax, electricity (base minimum costs). As opposed to variable costs which include raw material costs and production costs (additional units over base minimum costs).
Whether you start off as a one-man show, soon you will need to hire people! It becomes essential, you understand the correct system of paying salaries, with the correct deductions and incorporating the leaves.
DR Pro Tip: Accounting software in the market have integrations available to payroll software like Zoho Payroll. Therefore, check for app integrations if you are already using a cloud accounting software. A well-managed and structured payroll system ensures accurate payments to employees.
7. Know Your Tax Calendar
Rules with the ambit of compliances are everchanging, depending on the type of company structure you have, what your revenues are, whether you deduct TDS, or if you have a GST. Filings have to be done as per the last date, and if not, penalties range from financial penalties to prison time.
8. Bookkeeping: Moving from Record-Keeping to Advisory
Whether your business aims to scale, or you need to add/drop a product line, bookkeeping is not just about keeping a tab but is also advisory.
The books contain all the business transactions, including the revenue and the expenses that happened in a particular year. You need to have well-managed books for business analysis, generating financial statement as well as compliance purposes.
You have three options at your disposal:
- DIY: If your business is quite small, then you can help yourself by using simple excel sheets for tracking all business transactions. You can also use bookkeeping software with a nominal fee.
- Outsourcing: Most small businesses in their growing period may not have enough bandwidth to take care of detailed bookkeeping. In this scenario, outsourcing bookkeeping is the best option, which saves time and improves business efficiency.
- In-house: Hiring in-house bookkeeper suits best for businesses having a sizable workload.
Have questions? Book the webinar with CAxpert here!
*Examples provided for products in this article are based on personal experience.