Happy New Year, we wish you a productive and successful new season with lots of profits 😊
I have compiled small business bookkeeping tips that will help you to be successful with processing your day to day accounts and office management.
The tips show you how to do bookkeeping and will increase your ability and knowledge to operate your business with skill.
1. Keep Business And Personal Banking Separate
All new business owners must make it a priority to open a new bank account for their business, preferably an account with online access, to keep business funds separate from personal funds.
Processing transactions for your personal expenses within the bookkeeping of your business is a waste of precious time.
It’s even worse if you are outsourcing and paying a bookkeeper to process your accounts with these personal expenses mixed in.
And they will have to be processed if they are mixed up with the business transactions. They have to be entered into the bookkeeping system and coded to drawings, taking up precious time that the bookkeeper could just spend entering business data.
If you need to use business money for personal expenses, just do a bulk transfer to your personal account on a regular basis like once a week so that the bookkeeper isn’t having to deal with a million small personal transactions and making you pay for their time.
2. Recognize Business Vs Personal Expenses
Drawings (Personal Expenses)
A sole trader or proprietor will most likely withdraw funds from the business account for personal use (drawings). This can be done in place of paying themselves a salary.
A good practice is to transfer one amount on a regular basis, such as once a week, from the business account into the personal account. The personal account is then used to buy the groceries, books, toys etc.
The business account can remain nice and tidy with only business transactions and the one regular drawing amount. This will also avoid the temptation to allocate a private expense to the business.
Private vs Business Expenses
A business owner needs to know and recognize what type of expenses can be claimed against the profit to reduce tax, and what can’t be.
An expense that is directly related to the operation of the business and towards producing income is usually tax deductible.
An expense that is for the owner’s personal pleasure is not.
3. Organize Your Business Documentation
Keeping the documentation for all business transactions is a high priority. They are called accounting source documents. Keeping them enables:-
Easy tracking for any future queries that might pop up, and
Proof (to an auditor or tax man) of what occurred.
Most tax departments require businesses to keep the documents that back up their tax claims for a minimum of 3 and often 5 years. These are documents such as invoices, receipts, wage records, etc. Search the internet for your local tax department website and type in something like ‘how long to keep records’.
The only way to keep the records is to have a very well-organised filing and archiving system. A box or basket full of randomly placed papers makes it much harder to locate what is needed, and will cause an unnecessary waste of time not to mention frustration.
4. Keep Track Of Cash Payments
Any cash received should be paid into the business bank account or petty cash before spending it.
It can be tempting to take the cash right away to purchase supplies but this might cause a mess in the bookkeeping system.
For example, the bookkeeper/owner might:-
Forget which customer paid the money which can lead to some embarrassment if the customer is phoned some weeks later for payment and they have already paid! It could also appear as tax evasion because the income is not being declared in the system.
Forget to include the purchase in the books – these expenses definitely need to be entered in to the accounts to help keep your taxes down!
Being forgetful about the above will result in the bookkeeping system not reflecting a true record of what has occurred.
5. Learn To Understand Monthly Bookkeeping Reports
It’s surprising how many business owners have no clue if what they are doing is working until it’s too late i.e. they suddenly find themselves with no money and huge debts.
You can avoid this scenario by being pro-active about keeping your bookkeeping system up to date and producing reports at least once a month.
Learn how to read and understand those reports.
If you are going to own and run a business you can’t ignore this aspect.
The two most important reports to start with are the Income Statement and the Balance Sheet.
6. Keep On Top Of Your Sales Invoicing
There is nothing worse than having a job done by someone, like a plumber, and then waiting for months for an invoice. Most conscientious people would like to get the bill paid.
It is extremely annoying having to call up a supplier to ask where the bill is.
This appears as dis-organisation to the customer, and from the plumber’s perspective can be detrimental to the business cash flow.
As soon as a job is complete, or at least by month’s end, prepare and send out the customer invoices so that the income can start rolling in, thus keeping the bank balance healthy and enabling payments to suppliers to be made when due.
The importance of invoicing customers in good time is a lifeline for the business because this is where the money is at. Keep at it and be organized about it!
7. Outsource Your Bookkeeping When It Becomes Too Hard To Handle
If you, the business owner, are also doubling as the office administrator/ bookkeeper and finding the bookkeeping too hard or don’t have enough time to do it, then outsource the whole lot.
Outsourcing is:
Cost Effective: Because you only need to pay for a couple of hours of work a month opposed to paying a regular wage, and
Accuracy: You are getting that necessary professional work done on your accounts so you can be confident they are correct.
You can outsource as little or as much as you want done.
Professional accountants and bookkeepers can further advise you on the actual state of your business finances and give you ideas on how to improve cash flow.
The great thing about experienced professional bookkeepers is that they are usually in a position to give you great business advice over and above your day to day bookkeeping needs.
Attend business meetings with you and your banker and help explain the accounts to the banker if you find it a little difficult
8. Be Involved In Bookkeeping Checks Even If You Employ A Good In-House Administrator
Are you a small business owner employing an office administrator to do the bookkeeping?
Do you think they’re great because everything they says about the books sounds just like they know what they’re doing and at least you don’t have to?
Just because your bookkeeper may know more than you about bookkeeping, doesn’t necessarily mean it’s being done right.
You need to take an active interest in the financial aspects of your business.
Don’t sit back and leave it all to the bookkeeper.
It’s not fair to them and your business could end up in dire financial strife due to incompetence or fraud by the bookkeeper (it does happen).
As your business grows bigger, implement certain ‘checks’ along the monthly bookkeeping cycle so that the burden is not placed on one person.
09. Pay Your Employees On Time
If you employ people in your business make sure you do the responsible thing and pay their wages or salaries on time. Employees rely on being paid on time to eat and pay their bills.
Make sure you file your payroll returns on time and make the payments on time. Don’t ‘forget’ to do these things. Filing or paying late can incur fines for your business (a real waste of your business funds).
If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za
Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd
For more information: enquiries@matsobanemetja.co.za
If you really want to grow as an entrepreneur, you’ve got to learn to delegate.
Richard Brandson
Matsobanemetja Business Consulting Pty Ltd 