In the first part of this series, we discussed what effective bookkeeping looks like, and here we’ll provide a handful of bookkeeping best practices you can implement with your bookkeeper.
It can be easy to overlook the vital role your bookkeeper plays in your business. In the not-so-distant past, bookkeepers were often viewed as little more than glorified administrative assistants, whose primary job was to ensure a company’s income and expenses were recorded accurately.
To save money, some business owners (maybe even you) might also forgo hiring a bookkeeper all together and try to do the job themselves. But this is a huge mistake—and one that could doom your business.
Effective bookkeeping entails far more than just data entry and basic accounting—it’s about financial management. Indeed, your bookkeeper’s job is to create and maintain the foundation upon which all of your company’s financial and tax strategies are built. Without a competent bookkeeper to keep you apprised of your operation’s ongoing financial health, all of your business decisions will be based on little more than random guesses.
Here’s the bottom line: You should not be doing your bookkeeping alone. The job is too critical to your company’s success for you to try and fit it in with all of your other responsibilities. And the sooner you hire the right bookkeeper, the better, as your financial foundation needs to be correctly constructed from the very start of your business.
Last week, we discussed what effective bookkeeping looks like, along with answering a few questions you might have when hiring a bookkeeper. Here we’ll break down a few ways you and your bookkeeper can work together to implement sound bookkeeping systems and best practices.
Meet Regularly with Your Bookkeeper
I once asked a business owner client for his P&L and balance sheet. His response; “What’s a P&L?” The Profit-and-Loss Report (“P&L”) is one of the most important financial documents for your business. This was a terrific teaching moment for me as I sat with the business owner to help him better understand his business.
You should meet at least monthly with your bookkeeper to review your profit-and-loss (P&L) statement and ensure all of your expenses are accurately categorized. Developing an effective system for categorizing expenses will keep you from scrambling to get your books in order to come tax time and enable you to maximize deductions when you file.
Each month when you review your P&L, you’re looking for variances from the prior month as well as improperly categorized expenses—or expenses that aren’t categorized at all. It’s crucial to categorize expenses properly, so you can measure financial trends and write off as many deductions as possible against your taxable income.
An accurately categorized and reviewed P&L can also help you to make wise, strategic decisions from one month to the next, and you should use it to engage in quarterly strategic planning if you are not already doing so.
If your business is earning six figures or more each year, you may want your bookkeeper to prepare weekly financial reports for your review. The reports will show you how much you have in the bank, how much is coming in, and how much is going out at any given time.
Many of our clients, like the business owner with the P&L question, choose to have our legal staff attend these meetings with their bookkeeper. If this is something you’re interested in, let us know so that we can work out a schedule.
Go Paperless for More Efficient Recordkeeping
You should create a paperless filing system with your bookkeeper, so you don’t have to keep any paper records yourself. You should be able to send everything to your bookkeeper electronically, and he or she should keep all of your invoices, paid bills, and other vital financial records in a digital file for you.
Likewise, make sure you’re banking with a bank that provides electronic copies of your checks. Then be sure to send your bookkeeper a copy of the invoice or bill you’re paying with each check. That way, if any discrepancies arise in the future, you can easily reference checks and invoices to sort things out.
Keep Close Track of Accounts Receivable
Your bookkeeper should also keep track of any accounts receivable and include them in monthly reports submitted to you. Accounts receivable that go unpaid for too long or get overlooked are more likely to go uncollected.
What’s more, having these details included in your reports will allow us to help better should you ever need collection support.
Stay Apprised of Your Company’s Financial Health
The most critical best practice is to make it a habit to monitor your company’s financial status closely. Active monitoring means setting aside at least an hour every week to review your financials. You can use the information you obtain to address any issues that might come up proactively. It will also help you know what to look for during your monthly meetings with your bookkeeper when you review your P&L to keep it up-to-date.
Ultimately, effective bookkeeping involves putting sound financial systems in place and having a good working relationship with your bookkeeper. As a key player on your team of financial professionals, do not take your bookkeeper’s role in your company’s success for granted.
Don’t Wait to Get Started
Don’t procrastinate when it comes to finding the right bookkeeper. Hiring a highly experienced bookkeeper with whom you can build a tight relationship might require an investment of time and money upfront. Still, the ultimate payoff in terms of your financial strategy and tax savings will more than makeup for the effort and expense.
If you need support in finding the right bookkeeper, meet with Attorney Stephanie Scarborough for guidance. We can refer you to bookkeeping professionals we trust, and help you put systems in place to ensure your company has a rock-solid financial foundation. Contact us today to get started.
This article is a service of Scarborough Law LLC and Attorney Stephanie Scarborough. We offer a wide array of business legal services and can help you make the wisest business choices throughout life and in the event of your death. We also provide a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today