Posted by Abundant Wealth Planning LLC

Bookkeeping Habits to Avoid

Bookkeeping Habits to Avoid

How a business operates internally often affects how it looks on the outside.

Sound internal practices give an organization the agility to stay ahead, while the opposite leads to disorganization that causes a constant stream of challenges and headaches across industries.

Bookkeeping is an example of such an internal business practice.

Keeping organized records of your business's financial transactions can make a big difference in the way you work.

Clean books mean less time researching specific transactions and invoices and more time to focus on important things like growth, customer success, and employee experience.

Keeping financial records in order also lets a business adapt quickly to sudden changes in pace or direction. Receiving a clear picture of a business's short and long-term financial condition through up-to-date financial statements gives the business the ability to operate with confidence when circumstances change.

It's all about discipline.

Organized books require a strong sense of discipline from everyone involved in the bookkeeping process.

However, rigor in this industry tends to be on the spur of the moment for many entrepreneurs. With countless distractions and conflicting priorities, bad bookkeeping habits are developed and can turn into a negative cycle.

But the value of good bookkeeping practice cannot be underestimated, which is why it's essential to avoid the typical habits that entrepreneurs tend to develop, especially in today's climate of constant change.

Keeping the following five bad accounting habits at bay is essential if a company wants to keep its financial records as clean as possible.

Don't mix work issues with personal issues.

For many entrepreneurs, the lines between personal life and business pursuits can be blurred. However, it is encouraged that entrepreneurs avoid dipping their personal pens in their own company's ink to keep the books clean.

There are several bookkeeping issues that arise when there are no clear boundaries between personal and professional issues.

Maintaining a separate bank account for all business transactions will avoid confusion and make business accounting easier if you are a sole proprietor.

Small business owners are encouraged to operate in standard corporate structures to be aware of compliance issues related to director drawing, including the implications of Division 7A of the U.S. Assessment Act Income tax of 1936, which specifies the rules of such drawings.

Don't delay bank reconciliations.

Ensuring that business transactions have been properly recorded requires that payments be linked to the company's bank register, a process commonly referred to as bank reconciliation.

Bank reconciliation can be time-consuming and often feels repetitive, but it's a necessary task to keep your financial statements up to date.

Delaying the merger can create a number of problems for small business owners, which can seriously hamper their ability to make important decisions.

Companies need to be prepared for a single valuation in the startup world, and without the right reconciliation work, accurate valuations are impossible.

Business people are encouraged to establish a process in which reconciliation takes place constantly. It can be once or twice a week or once or twice every two weeks; just make sure your books are up-to-date and reconciled.

Don't forget to attach receipts and invoices to your transactions

The next bad habit is remembering to attach invoices to every transaction.

It is important to implement systems that simplify the process of securing receipts.

Having the invoice in hand will give you all the details you need about a specific transaction, and attaching it to the applicable transaction simplifies the process. It puts all your financial data in one place.

Also, do not forget to request a copy of the receipt by email from a supplier or immediately send a copy of the paper copy to a designated email address. This helps keep receipts easier to access for invoicing in the future of business accounting software.

Deferring configuration of automation tools

One of the pronounced challenges associated with running a business is relying on memory to do the job, which is why so many businesses are turning to automation.

Small business owners may want to automate, including generating recurring invoices, storing invoices, setting bank rules for reconciliation, and uploading invoices.

The key is to take a critical look at how your business operates and identify areas that need automation. Automation means working smarter, not harder.

Start customizing your chartered accounts.

The most recent habit that small business owners need to abandon is using profit and loss account templates that are not tailored to the business's specific needs.

The most usual presentation of this habit is when business owners use a general account as a shopping cart for random expenses.

These accounts are never useful and tend to complicate life when it comes to preparing a company's business activity statement, tax return, or applying for government incentives.

If you're not sure which category an expense belongs to, create a new account.

You can try dividing the different sources of revenue into separate accounts in the company's income statement.

Putting all of your income on one line makes it hard for anyone to get a true picture of your company's financial situation.

By separating the different revenue streams, the company's gross profit margin becomes more accurate and creates a much clearer picture of what's really going on.



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