Three Bookkeeping Documents Every Business Owner Should Know

Have you ever wondered why your bookkeeping woes just don’t seem to end? There might be one aspect of your business that you may have forgotten to pay serious attention to. Although preparing financial reports is your bookkeeper’s job, it is still necessary that you understand the importance of various bookkeeping documents. If those statements leave you confused whenever your bookkeeper presents them, it is a clear sign that you need to seriously consider gaining basic understanding of the documents. You may not be as well-versed as your bookkeeper, but having an idea about the purpose and how you can use them will help you understand the financial information that your bookkeeper gives you.

Cash Flow Statement

The Cash Flow Statement is intended for presenting the movement of your assets. The main purpose of the statement is to demonstrate which direction your assets are going. There are three movements that the statement is broken down into: operating, investing and financing activities. Operating activities refer to the activities that the business performs. Making a sale is an example of operating activities. The investing activities refer to the purchase and sale of various assets and an example is buying a new location. Financing activities include paying or generating debt.

Income Statement

The Income Statement provides a summary of your business’s profits and losses for the current period. It also shows the business’s income and the sales revenue. You can also find the expenses of your business such as the wages and rent in the income statement. In order to find the net profit or net loss, the bookkeeper has to find the difference between the expenses and the income. Business owners often expect to find a net profit on this type of statement.
If bookkeepers want to provide advice or recommendations, this is the statement they will get references from. The bookkeeper will obtain information about the status of your business and the steps to take to make it more profitable. As a business owner, you will be able to know whether or not your business is doing well.

Balance Sheets

The balance sheet is an important bookkeeping document because it shows the amount of money you currently have. However, you should keep in mind that your specific investments are not taken into account. Compared to most accounting or bookkeeping statements that focus on every financial detail, the balance sheets only show the business’s overall success.

The balance sheets are also referred to as statements of financial position and they are considered bookkeeping’s building block. If there are additional statements that need to be created, the balance sheets are going to be essential so final conclusions can be drawn. In fact, other statements obtain information from the balance sheets.

More often than not, there are three essential elements that can be found in these balance sheets: liabilities, assets and equity. The liabilities refer to the items that your business owes such as loans. Assets include business-controlled items such as machinery and cash. The equity refers to the capital left after the assets have been used to settle liabilities. The balance statement also shows that the business’s assets are equal to the sum of both the equity and liabilities.

Why Automated Bookkeeping Is A Good Idea?

Have you ever wondered why some businesses fail? It can be due to poor financial health, which is known to be a major contributor to small business failures.

If your bookkeeper is not performing the tasks efficiently, inefficiency can impact your financial health. In the digital era, small business owners have the option to make bookkeeping task easier through automation. If you need to check an updated financial report, automation will make information available in real time.

Why should a small business owner automate?

Manual tasks are time-consuming and repetitive. They also demand greater workforce and skilled manpower. However, even trained manpower does not guarantee an error-free report. Automation helps your business put things in proper perspective. The process is capable of correcting bookkeeping mistakes, which are committed repeatedly due to constant human interaction. Automation helps you to avoid these 5 mistakes:

1. Failing to track expenses regularly

Every business transaction must be recorded for a good reason: your business is dependent on your cash flow. Whether you are tracking sales or expenses, it is important that every transaction made is recorded. If you miss tracking your expenses diligently, you may end up covering expenses using your own funds.

2. Do-it-yourself bookkeeping

For a business that is just starting up, hiring a trained and experienced bookkeeper will only incur higher costs. However, a bookkeeper who is equipped with knowledge in using automated tools can ensure that your books are updated and your expenses tracked.

3. Not reconciling accounts

Business owners cannot afford to miss this task because it is a critical step in every bookkeeping process. A small bookkeeping error can snowball into larger mistakes if your bookkeeper does not pay heed to this process. Automation reconciles business books with card and bank accounts so you will know if there are discrepancies on the report.

4. Committing fraud

A business can lose vast amounts of money due to fraud. Fraudulent activities can be deterred if human interaction is reduced. Automation has a huge impact on the profitability of your business because it reduces dependency on manpower. As a result, you are also reducing the chances of committing fraud. Automation can easily spot discrepancies or incorrect details on your financial report.

5. Losing track of cash flow

Whether you want to invest or grow your business, the decision you make will depend on your cash flow. Every business should manage cash flow because it is also utilised for paying monthly expenses. A profitable business may not be considered successful without a steady flow of cash. Automated bookkeeping provides updated records of balance and withdrawn funds so you will have an overview of your cash flow.

Small Businesses: Tips for Improving Your Cash Flow

achievement-18134_1280If you are currently managing a small business, then I am sure that you are always looking for better ways to manage your finances, particularly your cashflow. This article provides some tips on how you can improve your cashflow in terms of managing suppliers, customers, inventory, and forecasting.

Managing Suppliers
When it comes to dealing with your suppliers, the number one tip is to pay them on time as much as possible. If the situation allows, you could also ask them for credit terms, which basically provides an interest-free loan for your business. Likewise, do not hesitate to ask for a discount or a good deal, especially if you order in bulk or make your payments early. In case you are not able to make a payment on time, communicate with your supplier as early as possible in order to set a formal agreement about the matter. Generally, the main purpose here is to maintain a good relationship with your suppliers.

Managing Customers
The secret to effective customer management is good communication. Whenever you have a new customer, always make sure that the payment terms are clear to them, and that your banking information is stated on your invoices. It is also a good idea to conduct a credit check on new customers, just to be sure that you do not run into any problems. In cases of large transactions, do not hesitate to ask for a deposit or set up a progressive payment schedule with your customers. Meanwhile, if you come across non-paying customers, the best thing that you can do is to offer them a payment plan that will eventually clear their debt. More importantly, regardless of the type of of customer that you are dealing with — be friendly.

Managing Inventory
In terms of inventory management, the two things that you need to watch is your profit margin and stock turnaround. Take a look at your products, identify which ones are making the most profit, and focus your time and investments on those items. Similarly, identify which products are “slow-moving” and come up with a plan on how to move them out as fast as possible. The money that you make from moving out these obsolete stock can eventually be used to invest on your more popular products.

Forecasting Your Cashflow
When it comes to forecasting your cashflow, what you can do is to search for a simple forecasting template and learn how to use it. By doing so, you can analyze your sales as well as identify patterns on when sales are at their highest and lowest.

By considering the ways in which you manage your suppliers, customers, and inventory; plus by learning how to do some basic forecasting — you will find that your cashflow will eventually improve in the long run.

Put An End To Your Bookkeeping Woes

Without a doubt, January is  one of the busiest months for most businesses because it is the time where recreating financial records is essential. Keeping abreast of your financial records provides you an idea where your business is headed. However, bookkeeping can be really stressful once your mind gets cluttered up with loads of financial information. Bookkeeping does not have to be a daunting task if you can properly manage your records.

You can avoid the stress by following these practices:

1.    Create a system – For sure, you have already identified your business’ areas for improvement and this year, you need to improve your system so you can keep up with the demands of your business. If you continue to follow ineffective practices, your business processes will remain stagnant. Technological advancements can help you speed up the bookkeeping process. For instance, software programs that enter the information quicker than the old process allows you to attend to other business transactions. These software programs also make record-keeping more practical because you get to store essential information in your data base so you can easily retrieve them in the future. You can also closely track your payments for taxes using the software.

2.    Capture data in real time – It might be easy to miss out on capturing unnecessary details such as using your personal card for your business because you forgot to bring your business credit card. However, when using your personal card for business transactions becomes a habit, the expenses can add up causing you to be entangled in a diabolical mess. These details, when overlooked can cause you to pay more income tax than you should. See to it that you record or capture every detail of your transactions so you will know where your business is going.

3.    Have a separate folder for your business expenses – It is easy to include all of your receipts and invoices in one folder, but if you are going to need them for keeping track of your financial activities, you will realise that everything is mixed up. Instead of placing all receipts in one folder, have a separate folder for your expenses so you can easily retrieve them. Not only will you speed up the process of generating your invoices, but you will also save time as the documents you need are already available.

4.    Update your data base regularly – Aside from setting up a system, you should also update your data base on a regular basis so you will know if there is any duplicate entry. However, you should take note that updating your data base does not have to happen every day. It will be greatly dependent on your business needs.

If you always dread bookkeeping, ensuring that your financial records are organised can help you reduce the stress that the process entails. When you do it regularly, you will begin to notice that you save time and attend to other obligations. The next time you recreate financial records, make sure you keep essential information handy.