Small Business Accounting 101

I came across an Australian Xero Partner website Account Aspects the other day that had a great little post about 6 Fundamental Bookkeeping Strategies to achieve accurate bookkeeping and help save on accounting fees. It’s true that small business owners often procrastinate and use unique methods to account for their business activity. (Sometimes not at all.) This leads to handing your accountant a mess of transactions to decipher and untangle to produce a (hopefully) accurate profit and loss statement for you at the end of the year. Such a reactive and non-productive effort is a guarantee of high fees at year end, plus how can you expect to know how your business is actually doing month to month? Cash flow is not the same as profit.

To get good information from your accounting data, you need a proactive approach. Take control of your data so it becomes meaningful during the year. Being proactive about your business finances will help you feel more inspired and determined, and less overwhelmed.

Below are their 6 Fundamentals, with a little editorial comment from us:

1. Consistent
Enter bills as Bills, use Spend Money for loan payments and bank fees, use Sales for invoicing. This will eliminate overpayments and improve your business interactions as you are able to send remittances and set up reminders for late payments on overdue invoices.

*Don’t short cut your transactions by trying to account for several transactions at once. Use the technology and tools to your advantage for better reporting.

2. Logic
Before actioning your transactions THINK “how did I enter the transaction last time? Which account did I code it to? “ Entering a transaction into Xero can affect many different parts of your file. Knowing the answers to these questions will improve accuracy and reduce the risk of an entangled mess.

*This is why the hierarchy of transaction matching in Xero is such a great feature in Bank Reconciliation. Entering bills and processing payments through Xero as they are received or paid forces you to analyze the transaction at that time, so that bank reconciliation is automated. Setting up a bank rule for recurring transactions also forces you to make decisive action, then virtually eliminates data entry at bank reconciliation. It’s especially important to really think about coding when you reconcile individual transactions, because Xero “learns” your transactions and suggests matches based on the initial coding.

3. Separate
Personal transactions don’t belong in your business bank accounts. Transfer one amount to your personal account weekly to cover your personal living expenses. This will decrease the number of bookkeeping transactions making it less overwhelming when reconciling your accounts.

See your business as an entity of its own.

*The IRS has even disallowed business expense deductions because personal and business funds were comingled. How would you feel if your employer used your bank account for their transactions?

4. Automate
Set up repeating invoices to bill for sales automatically, reducing days to paid and improving your cash flow. You will save time and gain efficiency on bookkeeping by setting up bank rules, repeating bills and invoice reminders.

*Turns out, if you ask people for money, they are more likely to pay you. Nothing is as devastating as realizing you forgot to send your customer an invoice when your own bills are due. You can even invoice from the Xero Touch App on your smartphone.

5. Systematic
Set aside regular scheduled time to login into your Xero file. Review your Dashboard and action draft invoices & bills. Take a look through your bank account and reconcile transactions. Send statements to your customers and remittances to paid suppliers.

*Xero Touch for your Smartphone or iPad makes access to your bank transactions so easy. Don’t think you have time to set aside for this? With Xero Touch you can use pockets of otherwise wasted time to reconcile- in the line at the coffee shop, kids school or doctors office.

6. Advice
Xero is a powerful tool when all features are utilized. Align yourself with a reputable Bookkeeper and use their knowledge and experience to invest in yourself. Through training and support you will gain business insights to grow your business. Peace of mind is knowing that you have an accurate and reliable Xero file.

*ditto
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– See the original post from Account Aspects

By | 2016-01-15T15:09:37+00:00 January 15th, 2016|Accounting, Uncategorized, Xero|