Have you ever wondered how a small business bookkeeper handles the bookkeeping for their own business?
Or maybe you're currently managing your own. Good on you!
I'm in control of our business bookkeeping. While I may not handle every aspect of it like creating invoices and posting payments I have the correct checks and balances in place to ensure the accounting is correct.
For those of you looking for that suggestion that saves your life, I'd consider outsourcing bookkeeping services and saving yourself the headache.
Anyways, here are the key things I do with our own small business bookkeeping.
Owner in Control
Nobody can move money, process payroll, or pay bills except for me. Those are just good accounting practices.
Many owners that outsource their bookkeeping or have an internal bookkeeper put too much trust in them. The more sensitive permissions you give your bookkeeper the more likely it is that they will steal from you. Bookkeeper theft is a major problem right now.
Here are a few things your bookkeeper should never be able to do:
- Sign checks, pay bills or transfer money
- Have unlimited access to your bank account
- Have access to your bank account numbers
- Have access to your social security number
These may seem like common sense things but quite often I have business owners try and give me this information. Once we explain why we can't take this information they get it.
I update our bookkeeping at least once per week but often daily. When you update your books daily you catch things faster and your books are always up to date.
I showed one of our clients how to reconcile the books daily and he was blown away.
He said he didn't understand why his previous bookkeeper didn't show him this. When I told him to have his bookkeeper handle the daily reconciling he objected.
He said he wanted to do it himself as it only took a few minutes, he had complete control over his books, he knew what was going on at all times, and caught mistakes early.
When you reconcile daily you have a really good handle on cash flow.
By printing checks and entering transactions before they post to your bank account you really get an understanding not only of your current cash balance but also your future cash balance.
Daily reconciling makes you the king of managing your cash flow.
I have a tradition to email my CPA three QuickBooks files on January 1st each year; our business and my wife's two businesses.
It probably takes me 15-20 minutes to finish the books for the year and email them off. The reason is because my books are always up to date and yours should be too.
Another thing about my books is they are always accurate. That doesn't necessarily mean I know how to handle every single transaction that happens on our books.
Every once in a while a transaction comes up that is complex enough that I need to advise with my CPA.
When you don't know what to do with a particular transaction don't just bury it in a random account. You should code all questionable transactions to the QuickBooks ask my accountant code.
That way you can keep all of your questions organized in one spot.
Make sure to add as many details as possible to the memo so when you do get the chance to review them with your CPA you have sufficient information.
How much could accurate books change your business?
Find out in a free analysis. It could change your cash flow, profitability, and ultimately your bottom line.
It is really frustrating to me knowing how many small business owners don't set goals for their business each year. It is really important to create a budget and forecast each year.
Here are some guidelines for building a small business budget.
After you build your budget you should enter the budget into QuickBooks. This makes budget vs actual comparisons really easy.
Having this information at your fingertips will allow you to quickly see if you are on track for the goals you have set. If not make the necessary adjustments to get back on track.
Key metrics and reporting
There are certain key metrics and reports that every business owner keeps an eye on; either consciously or subconsciously. I definitely have my 3 or 4 key metrics that I watch every month.
If they get out of line I figure out the cause and try and make the necessary adjustments to bring them back in line with my goals.
Another important part of any small business owner's job is to analyze financial reports.
I have a series of reports that I have memorized in QuickBooks to allow me easy access to vital reporting information.
Way too many small business owners operate without any financial analysis. Doing so is like running your business blind.
You can't analyze your key metrics and financial reports unless your bookkeeping is updated, accurate, and you have set goals.
Money owing from customers in the form of accounts receivable is one of the biggest contributors to your company’s cash flow.
While business success hinges on having positive cash flow activity - where there’s more money coming in than there is going out - the money that flows into your business can’t really be counted as income until it becomes cash-in-hand.
Every accounts receivable entry in your company records is essentially a short-term loan that’s been issued to a customer.
Keeping your overdue accounts under control means getting paid for these loans in a timely fashion, but many business owners don’t fully appreciate the crucial role that the collection of these outstanding debts plays in their success.
Why is cash flow so important? Aside from the obvious need to pay employees and purchase supplies, establishing a positive cash flow is the only way your business can earn a profit.
No company can continue to operate if it consistently pays out more than it takes in, and it’s the ability to generate and use cash that allows your business to:
- Stay on top of its debts
- Enjoy regular growth
- Maintain flexibility in the face of financial emergencies and expansion opportunities
- Get approved for new credit
- Attract additional customers with better credit terms
Every business has its share of accounts receivable, and the bigger a company gets the more outstanding accounts it will tend to have.
It might not be the most enjoyable part of running your small business, but learning how to manage these accounts effectively can mean the difference between heading a company that profits from long-term success, and one that simply closes its doors and disappears.
The Importance of Checking a Client’s History
Many collection headaches can be avoided entirely if your business takes the time to investigate each potential new customer before extending the privilege of a credit account.
Three of the most important aspects of evaluating and approving a client for credit include:
- running a credit check, and obtaining a credit report
- requesting and checking bank and commercial references
- obtaining a signed agreement with respect to the credit and payment terms being offered
Credit checks may not be free, but at about $30 per report, they’re a bargain when compared with the costs of not being able to collect on a delinquent account.
Meanwhile, reaching out to a potential client’s past and current trade partners is a great way to uncover revealing information about their payment history.
Does the customer make a habit of paying their invoices on time, or are they a reluctant payer that consistently requires follow-up?
Don’t fall into the trap of thinking that any new client is worth the risk of overlooking the occasional red flag.
The cost of dealing with a customer who doesn’t pay can often be higher than the cost of forgoing that client’s business in the first place.
Collection Success for When You're a Small Business Owner
Lack of integrity aside, there are any number of reasons why a customer might fail to pay their invoices on time:
- smaller companies may be short-staffed and disorganized in their approach to paperwork
- bigger companies may have trouble streamlining their large volume of administrative duties
- companies of all sizes may experience negative cash flow due to a lack of proper budgeting or an inefficiency in collecting their own accounts receivable
Effectively dealing with your company’s accounts receivable demands an objective mindset and an understanding of when, and how, to gradually elevate your collection efforts.
Staying current with your invoicing, monitoring the status of your outstanding accounts at least weekly, and knowing when to enlist outside help are just some of the habits that will help to keep your company’s cash flow moving smoothly.
Here are five valuable tips for ramping up the success of your accounts receivable collections:
- Design and enforce a plan for following up on overdue accounts at regular, pre-established intervals – for example, when invoices are 7 days past due, 15 days past due, 30 days past due, and 45 days past due.
- Issue an initial reminder letter or email, followed by a phone call – for best results, your follow-up schedule should take advantage of a variety of communication channels, beginning with email, then moving on to telephone and certified letter mail.
- Offset a failure to collect with alternative payment options – when a valuable client has fallen on temporary hard times, consider offering to take installment payments for an outstanding balance, or to accept a reduced amount as payment in full.
- Mail out a certified payment demand letter – an official letter from your company’s lawyer threatening legal action will often be enough to encourage a consistently negligent client to prioritize the payment of your invoices. But don’t be afraid to hire a collection agency if all else fails – recovering partial payment for a bill is better than receiving no payment at all.
- Be persistent, but know when to quit – successful accounts receivable management requires dedication and a willingness to be persistent. Just the same, there may eventually come a point when investing additional time and resources into collecting from a delinquent client is no longer worth the cost.
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