8 Bookkeeping System Necessities

| 7 min read

8 Bookkeeping System Necessities

Over the 14 years I have owned a bookkeeping service you can imagine that I've seen a lot of different sets of books; the good, the bad, and the incredibly ugly. To be honest, more often than not the books are pretty bad. It's little things here and there, that just compound to make up an overall bad bookkeeping system. 

Once a bookkeeping system has gone bad it loses its value to the business, the team, and the owner. It becomes a constant frustration for everyone. So typically everyone gives up on the books as a lost cause.

In this post, I cover certain necessities that a great bookkeeping system must have.

Proper Bookkeeping System Setup

More often than not when I dig into a set of books the general conclusion is that they are just not set up properly. Most everyone figures out how to link up their bank accounts and credit cards, but then they don't know what to do from there.

A good bookkeeping system always starts with a design of the right system. Just like anything else, in order to build the right system, you have to understand what your goals are. If there is certain information or level of detail you are looking for you need to structure the books in the proper manner to deliver that information. 

Most business owners get frustrated with their bookkeeping because it isn't set up properly to deliver valuable information. 

There are so many key facets to consider when designing the right bookkeeping system but it comes down to software choices and processes.


Chart of accounts - The set up of the chart of accounts is actually one of the more important aspects of designing the right bookkeeping system. You have to first understand what you are trying to accomplish. What information is important to you? Then you need to tailor your chart of accounts to deliver that information.

I always tell people to make your chart of accounts as simple as possible, while still being meaningful to you as a business owner. 

That can be easier said than done. However, I like to keep it simple because you can always modify and add to the chart of accounts as your business grows and progresses. When you start looking at more meaningful reports you will start to think to yourself that it would be great to see some sort of additional metric or level of detail. 

POS System or CRM - One of the key pieces of any bookkeeping system is automating as much as possible how money flows into the business. This is often done through a point of sale system or CRM. However, not all POS systems integrate with QBO (even if they claim to). Some systems integrate with QBO but not in any manner that is useful.

Tip: "You have to verify that your POS system does in fact integrate with QBO with an accountant that has actually done it and will vouch for its capabilities. Don't trust the POS sales guy."

Another option that I recommend for certain types of businesses is to do all your invoicing through QBO and only accept electronic payments through QuickBooks Payment services. This will fully automate your sales and accounts receivable because all payments will automatically sync back into QuickBooks marking the invoice as paid and matching to your bank deposits.

Lastly, I highly recommend only accepting digital payments like bank ACH or credit cards. Cash and checks take time and labor to process. Any money you think you are saving by avoiding merchant fees is lost due to time, bounced checks, and non payment.

Bill pay systems - There are tons of different bill pay systems out there that will enhance your bookkeeping system. Things like using QBO receipts and Bill.com will further automate and digitize your bookkeeping system and save you a ton of time. 

Payroll integration - Payroll is another area where you can really have a big impact on your bookkeeping system. If you are asking for my advice it is hard to beat Gusto. With simple pricing and excellent customer service, I don't think you will find a better payroll provider out there. Additionally, they have a great interface with QBO to automate the payroll entries into QBO. 

People often ask why we don't recommend QBO payroll. Too be honest, its not as good and actually creates more issues in the books. I am a big fan of outsourcing to a reputable 3rd party payroll provider that has a good QBO interface.


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Automation With Oversight

Yes, you want to automate your books as much as possible. However, it can be incredibly dangerous and get out of control quickly without the right oversight. Everyone is obsessed with automating their bookkeeping and believe me I get it, so am I. However, automation can make mistakes. 

We have all seen the issues that QBO bank feeds can cause. It can get out of hand fast when you trust the software too much. Most of the issues we see in bank feeds come back to people just adding transactions based on where QBO thinks it should go. This can lead to misreporting your income and give you false data that you should be using to make decisions. 

Any automation that you add to your bookkeeping needs to be reviewed and approved by a competent Accountant and QBO advisor regularly. 

Books Updated Regularly

The next key element of any good bookkeeping system is that it gets updated regularly.

But how often is the key question? Honestly, if I had my way, I would update the books daily if at all possible. If you have designed the right bookkeeping system and have it automated with oversight, it really shouldn't take a ton of time to update your books. I update 3 sets of books every morning. EVERY SINGLE MORNING. I do it over coffee and it has become a tradition of mine. What is the total time commitment? Typically 2-3 minutes per company. Now keep in mind, one of the reasons it doesn't take more than a few minutes a day is my books are designed well and I have the right amount of automation with oversight. 

Years ago before technology was as advanced as it is today people had a dedicated bookkeeper. That person was updating the books every day. It was a more time consuming job back then because the technology was not as advanced as it is today. I bet it felt good to know that the books were always being tended to.

These days, because of technology most businesses only update their books weekly or monthly. Some just neglect them completely and handle them once per year. I don't like for the books to be too far behind because you can't make good decisions with old data.

If you are updating your books monthly try moving to twice a month or weekly. You might be surprised how much value it can add. 

Reconciled To Your Statements

The number one mistake we see in general bookkeeping is not reconciling your accounts to your statements. Hands down, no questions about it, this is the most common mistake. 

But if you are adding everything through QBO bank feeds why do you even have to reconcile?

Because you can still screw things up and reconciling to a monthly statement is the only way to prove that you have everything accounted for. Now whether or not it is coded to the right account is a whole other story. 

I can't tell you how many times that QBO has suggested I code something to uncategorized asset. And yet a better question is why would any account start with uncategorized?

The best thing you can do for your bookkeeping system is to reconcile it to the monthly statements. However, don't stop with just the bank accounts and credit cards. Make sure to also reconcile all loans, lines of credit, payroll liabilities, and any other liabilities you have.

Data On Your Key Performance Indicators

Key performance indicators, or KPI's, is a big buzz word huh? Yes, but they are important.

What are the top 5 metrics for your business? Do you even know? 

Ok, let's try a different route. What financial information, reports, or ratios would be valuable for you to see on a regular basis?

Some examples of a general KPI might be profit margin, gross profit margin, payroll expense as a percent of income, etc. 

The critical thing is that you have several key indicators that you are monitoring to keep the business aligned with your goals.

With a good bookkeeping system that is updated regularly, you can get reporting on your KPI's which allows you to quickly check the health of your business and make adjustments as needed. 

Insight Into The Future

Your bookkeeping system should give you valuable insights into the future of your business. That can be done by forecasting your future business financials

And what value does that add? Honestly, to me it is everything. It is the right way to run a business. You will learn a ton by building a good financial forecast. It will validate business decisions.

By comparing your actual results against your expected results you are going to learn a lot and become so much more business savvy. I really don't understand how any business can operate without a budget and forecast. I couldn't sleep at night not knowing where my business was going and how it was going to perform.

Forecasting can help you both identify potential problems, but also opportunities for your business. Rather than running your business on your gut, you will be running it on data.

Here is a classic example of what forecasting can do for you:

When you get really busy and overwhelmed in your business what is your knee-jerk reaction? I need to hire someone. Right?

But do you look at it and break it down and analyze it?

What would they do? (detailed job description)

What would that cost? (Advertising, payroll, benefits, training, etc.)

What is the expected result or benefit?

Is that a good decision or a bad decision?

Can I afford it? Where would that cash come from?

Forecasting validates your gut and paves the way for a good plan to execute.

Give You Actionable Items

Your bookkeeping should give you actionable items. Your bookkeeping system should be delivering you reports and information that you are using to create high-level meaningful tasks. 

You should be reviewing your financial performance on a weekly or monthly basis to understand where you are and what adjustments you need to make if any.

Here are some examples:

The need to hire or fire.

Investments in advertising to promote a new or current service.

Negotiations with a vendor on prices.

The need to adjust prices because of a major change in costs or the market in general.

And the list goes on and on. You should be reviewing your financial performance on a regular basis to create actionable items you need to accomplish to keep the business on track with your goals. 

Help You Develop Strategy

Do you ever talk about bookkeeping and strategy in the same sentence? Most business owners associate bookkeeping as a pain in the butt task that is a means to a tax return. But that is because the books are not being handled in a way that provides valuable information to the business owner.

If your books are set up the proper way as I described above you should be able to use them as a tool to make better business decisions that increase your profits.

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