Accounting on Us
Implementing best practice approaches into your accounting processes will save you time, money and sleepless nights.
Best accounting practices
Jessica Moulder, CPA, CFE
I often meet small business owners who live and breath their business operations; however, when it comes to their books and records it’s not something they prioritize. There has never been a more important time to take a closer look at your accounting records. Maybe you’re having to tighten up due to the current impact of the COVID-19 situation. You may have received a PPP loan or other funding from the SBA and you’ll soon be required to provide solid documentation in order to obtain forgiveness. Or perhaps there is just too much future uncertainty to not keep a very close eye on your accounting and finances.
Implementing best practice approaches into your accounting processes will save you time, money and sleepless nights. The following will help you grow your business, increase profits and reduce risk:
You should be formally closing out your books timely on a monthly basis.
This is more than just reconciling your bank accounts, although that is extremely important. This process should include reviewing and reconciling ALL balance sheet accounts. Making sure you understand any accruals. Scrubbing the income statement accounts to make sure everything was coded properly. Reviewing the financial statements with key management and make sure everyone is on the same page. This is so much easier to do when everyone is only digesting one month of operations at a time. Compare the results to the prior month, your budget or other expectations. And then password protect the activity for the month so that nothing can intentionally or accidentally change without your knowledge.
Quit mixing business expenses with personal spending.
There are so many reasons why you should only use business-related accounts for actual business purchases, but the most important relate to the exposure risk running personal expenses through your business operations creates. Mixing personal expenses in distorts the actual performance of operations and increases the transactions a taxing authority would be reviewing should you ever find your records being audited. It also greatly increases the time your bookkeeper spends on your monthly accounting because sifting through more transactions than necessary increases fees.
Make technology work in your favor.
There are so many benefits to implementing technology to increase efficiencies and reduce errors in your accounting records. It allows people to work remotely without sacrificing internal controls, which is more and more important in our current times. Having the ability to review and pay bills from anywhere might also allow you a vacation or time away from the business when you’re ready to travel again.
Stay on top of compliance issues and other deadlines.
This includes tax filings – more than just your annual income tax returns. Make sure you’re handling payroll properly, remitting 401k withholdings timely, calculating sales tax properly, and issuing 1099s annually. Closely monitor due dates to ensure bills are paid on time. Failing to keep your eye on things like this can result in penalties and fees – as well as unhappy customers and employees – and they can be easy to miss if they aren’t on your radar.
Review your processes regularly.
It’s easy to stay in the same routine while you’re pulled in so many different directions, but it’s smart to take a look at your processes and procedures at least annually to make sure you have good segregation of duties and are utilizing the best resources for your business. We are using software and apps today that didn’t exist five years ago, so take a look at what’s new that you may be missing.
Reach out for help!
If accounting, taxes and finances aren’t your strong suit, it’s always a wise move to seek help from the experts. Even my clients who are good at handling their accounting on a day-to-day basis really benefit from an extra set of eyes on things from a higher level or some training to use their software more effectively. Allowing your accounting professional to be involved throughout the year allows for mid-year corrections and adjustments and way fewer fire drills when you’re suddenly tasked to provide a financial statement to an investor or meet a tax deadline. Small business owners with solid accounting and banking relationships definitely experienced the benefit of those connections when everyone was scrambling to understand and apply for PPP loans earlier this year.
Knowing your books and records are in solid shape gives you confidence to make better operational decisions. It typically results in better planning and less surprises – which is always a good thing. The current COVID-19 situation has certainly showed us how quickly things can change, and now is a great time to evaluate your accounting practices and make improvements.