How to Improve Financial Record-Keeping for your Business
Financial record keeping isn’t a simple chore that you can rush through during tax season. Rather, the ongoing systematic tracking of your business income, expenses, and transactions provides a foundation for all of your financial processes and helps you to assess how your business is performing throughout the year.
Bookkeeping isn’t every business owner’s favorite activity, but savvy business owners know the value of well-organized financial records. Maintaining detailed books helps ensure tax compliance, supports decision-making, and improves administrative efficiency-saving you time, money and stress!
As someone who works closely with business owners and their bookkeepers, I’ve seen everything when it comes to bookkeeping. Here’s some information on financial record keeping, including common mistakes and strategies for improvement.
Common Mistakes and Challenges in Financial Record Keeping
Managing your own financial record-keeping can be a cost-saver, but only if you have the time to apply the right amount of attention and expertise to the task. Here are a few of the pitfalls that business owners commonly face with their financial record-keeping:
Misclassification of expenses, resulting in inaccurate financial records
Inadequate tracking of revenue sources, resulting in tax filing complications
Lack of regular review and reconciliation to ensure accuracy and compliance
These issues result in tax compliance issues, cash flow problems, and hindered financial decision-making. Bookkeeping errors and omissions can result in decisions being made with bad information, which can have a long term effect on the business.
Improving Financial Record Keeping: Strategies to Implement
Use Appropriate Software
Every business owner knows the importance of using the right tools for the job. For financial record-keeping, I always recommend Xero. To streamline all of your record-keeping processes, you can integrate your accounting software with your other systems and payment platforms.
Regular Review and Reconciliation
Accounts and records should be reviewed on a regular basis. Otherwise, what’s the point in maintaining them? Depending on the bookkeeping system, these reviews may be monthly, weekly, or even daily. A recommended approach is to perform brief, minimal reviews of transactions on a daily or weekly basis, with more thorough reviews occurring at the end of the month.
Financial record reviews should include reconciliation. This involves checking your records against their supporting documentation (eg. receipts, bank statements etc) to ensure that all data is accurate and that there are no inconsistencies between different records. You can use accounting software to partially automate this process.
Proper Staff Training and Delegation
When delegating tasks such as bookkeeping and accounts management, recognize the limitations of your administrative staff or even yourself! Financial record-keeping is complex and errors can be costly, so it’s essential that these tasks are only performed in house if you have the right person taking on the task.
If your in-house staff is charged with financial record-keeping tasks, be sure to provide proper training and oversight where necessary. Reach out if you’d like a copy of our bookkeeping checklist to keep things on track.
Setting Up Defined Expense Categories
As you establish a record-keeping system, an important initial step is to set up defined expense categories. The major expense groupings are:
Fixed expenses that remain the same from month to month, such as rent
Variable expenses that occur regularly but change from month to month, such as utility bills
Periodic expenses that occur from time to time or on a less-than-monthly basis, such as building repairs or annual insurance payments
More granular categorization can include categories like training and education, insurance, utilities, and software. Keeping your expenses properly categorized in this manner is critical for maintaining organized books and ensuring that you can use the information to see how your business is performing and make decisions.
These are all small changes you can make to start to build out your record keeping system. And that’s exactly how you should look at it- a system or workflow that needs to be built as efficiently and effectively as possible, like you would with marketing or client delivery. Every action you take should benefit the business as a whole- investing the time to create a record keeping system and then implement it and tweek it over time, will benefit you in the long run.
Imagine what it would feel like to know how your business is performing at any point in the time? Imagine the pro active approach you could take with those big decisions, such as can we afford to hire a new staff member, are we able to invest in a rebrand or a tech overhaul? These are the things that you need your financial information for so that decisions are made based on fact and not feelings.