Strong bookkeeping and financial accounting records are essential for the success of any business, big or small. Some of the largest businesses in the world have ultimately failed because their accounting practices were disorganized — or worse, deceptive. Small businesses may be even more susceptible to poor accounting practices.
Even though a small business is heavily reliant on cash flow, most entrepreneurs simply know very little about accounting. They believe accounting is better suited for larger companies with more assets. They run their business like they run their personal finances, checking the bank account balance occasionally and paying bills when they have the funds.
How do you make sure you’re not one of these businesses? First, you need to know the basics of accounting. Here are four tasks you should be doing each and every week.
Bank Account Reconciliation
Your bank account really can’t be reconciled too often. Proper bank reconciliation means that you have the cash that you think you have, which is obviously very important for any business.
Many small businesses make the common mistake of waiting for a bank statement to reconcile their accounts, but bank statements are only mailed monthly. That means you have roughly 30 days between reconciliations, and a lot can happen in 30 days. You should at least reconcile all of your cash accounts weekly. If you have the time, daily is an even better option.
You need a system for vendor payments. This is vital for keeping track of your debts, and it’s also important for establishing a good reputation and credit history with your vendors.
Your payment terms will vary from one vendor to the next, so you can’t get by with paying bills only once a month. Some vendors may give you 30 days to pay, but others require payment on receipt. If you only pay bills on the first of the month and receive a “due on receipt” invoice on the second, the vendor will most likely freeze your account or cancel your service for non-payment.
However, this is one task that shouldn’t happen daily either. It’s confusing and time-consuming for your bookkeeper, and there’s no real benefit to paying bills every day. Once a week is the best time frame because it’s most efficient. Your bills are promptly paid, and your bookkeeper isn’t distracted by too many check runs.
The only thing worse than an unhappy vendor is an unhappy customer. No one likes to pay a bill, then receive a “past due” notice a week later. To avoid this situation, make sure your customer receipts are recorded in a timely fashion. Daily would be ideal, but weekly should be sufficient, too.
Whichever time frame you choose, make sure you mark the actual date the payment was received — not the postmark date or the current date. Obviously, you should also never mail statements without posting all your receipts first, unless you want to field calls from frustrated customers.
Other Transaction Entries
Vendor payments and customer receipts will make up the bulk of your transactions, but you probably have others, too. Auto-debits, interest payments and bank fees are some common transactions that you’ll need to record weekly. Most bookkeepers choose to record these before a bank reconciliation to make the process as smooth as possible.
As you grow, you’ll likely develop your own system for each aspect of the accounting cycle, but this guide should give you a good start. Remember: Whether you’re the bookkeeper or the business owner, it’s important that you stay on top of the business finances. Ultimately, they’re key for the company’s survival.