The Importance Of Reconciling Your Bank Accounts

One way to detect any unusual transactions is by comparing your records against the bank records. This practice is known as bank reconciliation.

How does bank reconciliation work?

You reconcile your accounts by comparing record of balances and transactions to monthly bank statement. You will need to review each transaction to ensure that the amounts match perfectly. The bank statements should also show an ending account balance. Bank reconciliation is similar to balancing your checkbook. Both tasks are done for the same reason. Although you may see some slight differences, the differences must be properly explained. One good reason that your transactions may not match is when you write a check to a vendor. This will result in reducing your account balance accordingly. However, your bank will show a higher balance unless the outstanding checks hit your account.

Another reason you will see these differences is when an automatic electronic payment is paid into your account. If it appears on your account earlier than expected, discrepancies will be evident. There is no need to worry as long as the discrepancies can be accounted for.

The importance of bank reconciliation

Problems only get out of hand if accounts are not reviewed regularly. Bank reconciliation will enable you to:

Detect Fraud

Fraud cannot be easily caught unless you perform a thorough investigation by going through your records. Checks that are manipulated or duplicated is a sign of fraud. If checks are issued without authorization or there are frequent incidents of unauthorised transfers, you know that your employee is getting more than what he or she should be paid for.

Identify Problems

There are issues that need your immediate attention, but as your business grows, you become busy taking care of other aspects of your business that you no longer have enough time at your disposal. Bank reconciliation helps you to prevent or identify problems by catching bank errors, ensuring that everything goes into your accounting system properly, keeping track of your outstanding checks, knowing how you much you have available in your bank account and more.

The best time to reconcile your accounts

Business owners must see to it that accounts are reconciled at least monthly. However, if you own a high-volume business where fraud is a risk, you will need to perform bank reconciliation more than once a month. Some businesses even reconcile their bank accounts daily to prevent any unauthorised transactions.

How to reconcile your accounts?

There are many ways you can perform bank reconciliation such as creating a bank reconciliation statement. The first step is to match your transaction and compare your balance at the end period which can be daily, monthly opr quarterly. Your bank should give you access to your online account so you can view and download bank transactions regularly.

Is Your Bookkeeper Stealing From You?

Having a bookkeeper gives small business owners peace of mind knowing that income and cash flow are well taken care of. However, discovering that your bookkeeper is stealing from you only denotes that your business has very little chance of success. The tricky part about bookkeeping is that you will never know that fraudulent transaction happens until you discover your financial records. Failing to pay close attention to your records can make you more vulnerable to employee theft. Here are signs our bookkeeper may be getting more than just his or her paycheck:

1. Discrepancy with your bookkeeping records

One of the things to look for when you are highly suspecting your bookkeeper of stealing from you is by checking your bookkeeping records. This is one way to detect that your bookkeeper has been manipulating your records. While occasional adjustment is considered normal, seeing a pattern without any valid explanation only shows that there is a serious problem. If books are not adding up and you do not know where problems are coming from, you will need to ask hard questions to find out about the discrepancy.

2. Maintaining higher level of secrecy

If there is one person that should be the most open within your business, it is your bookkeeper. A bookkeeper is responsible for showing you everything within the bookkeeping software at all time. It is a cause for concern once a bookkeeper is trying to hide the books from you. Since you are the business owner, there is no valid reason that you should not see the books. If a bookkeeper is habitually stealing from your company, he or she will hesitate to turn over financial information.

3. Insufficient cash flow

Businesses regardless of the size should give importance to cash flow because it is the lifeblood of every business. The reason you hired a bookkeeper is to keep your business on the right track. Most business owners can easily predict the levels of cash based on the number of customers they have. The number of invoices being sent out also gives you an idea of your funds. You can easily uncover a problem by considering this factors.

4. Resisting bookkeeping assistance

Although bookkeeping for small business is a job that one person can work on, there are times when two heads are better than one especially when you are you have a lot of bookkeeping obligations to handle. However, a bookkeeper who prefers to work on their own may have an ulterior motive, which you need to find out as this is considered a red flag.

Minor Bookkeeping Errors With Major Impact On Small Businesses

Bookkeeping is one of the least appealing tasks for small business owners. It is often set aside to make way for other business obligations. Negligence of bookkeeping tasks has an impact on your business. Here are 5 bookkeeping errors that should be avoided whenever possible.

Mistake #1: Not recording all transactions

Errors of omission is a common mistake that is often overlooked unless its negative effects become obvious. When buying inventory or collecting payments, it is important to record transactions to prevent business activities to slip through the cracks. You will instantly throw off your books if your financial records are accurate. Aside from having difficulties measuring your profitability, filing small business taxes will also be a challenge. Make sure you note every business transaction even the ones you deem insignificant. Make it a habit to keep the receipt and organise small expenses into their proper accounts. Every business keeps a small amount of cash on hand. This is referred to as petty cash. In case you are going to buy something with petty cash, make sure that the purchase is recorded.

Mistake #2: Treating cash flow and profits equally

While cash flow and net profits have to do with expenses and income, there is still a big difference in how cash flow and net profit measure money.

Net profit enables to determine whether you are making money after paying your expenses. Your net profit is obtained when you subtract your expenses from your sales. It reflects the amount of cash your business gained during a certain period as it also measures a specific block of time.

Cash flow has to do with measuring how fast you move money. It also gives you an idea of the amount of cash coming in and going out of your business. This is shown on your cash flow statement. Your cash flow shows you the liquidity of your funds. It is important to know the difference between net profit and cash flow because when making a sale, but you do not receive the payment right away, it will only reflect the net profit you earned. Since the customer has not made a payment yet, it will result in having low available funds (cash flow).

Mistake #3: Failing to reconcile books with bank account

Financial records need to be accurate at all times. Aside from keeping records and receipts, reconciling your books with your bank account is also a must. Your accounting records and bank statement should match. However, if you fail to reconcile your books, accounting errors will go unnoticed. When you reconcile your accounts regularly, it will be easy for you to spot errors of original entry. Some bookkeeping errors are a simple fix, but since they are ignored, they will snowball into a bigger problem in the end. Keep in mind that it may take six months to notice the mistakes when filing taxes. These errors could have been prevented, have you been diligent in reconciling your accounts.

Mistake #4: Not analysing your budget

If you are working with limited funds, you need to avoid overspending and plan for income and expenses according to your business budget. Using a budget helps you keep your money on track. It also saves you from any guesswork in financial planning. Refer to past bookkeeping records so you will determine future income and expenses. You will also need to stick with your budget once you have put it in place to prevent overspending.

Mistake #5: Spending too much time on bookkeeping

Just because you are a small business owner does not mean that you should not hire a bookkeeper and resort to DIY bookkeeping. Your obligations become unpredictable when that it results in ignoring your bookkeeping tasks. Although managing your books demand time, it is important to find an effective way to handle this task so you can focus on running your business.

What Exactly Is Bookkeeping And Why Is It Important?

We have been told time and again about the importance of bookkeeping, but we always find ourselves procrastinating because it is the job we always have a love-hate relationship with. Bookkeeping is defined as the storing, recording and retrieving of financial transactions of an organisation. It includes tasks such as sales, receipts, payments and purchases. There are several methods involved in bookkeeping, but one thing is for sure, we cannot maintain the finances without bookkeeping.

It helps you manage your cash wisely.

Part of operating your business is to manage customer and supplier accounts. With bookkeeping, you will be able to create a business player, track deposits and monitor payments. You will also know how to make sure that every dollar spent is intended for your business. When you update your books, you will know the financial state of your business. If you have an outstanding bill, income information, unpaid invoices or payroll estimation, you can gain access to these by simply looking at your financial statement.

It helps you make a decision

Thinking about expanding or growing your business? It will not be easy without knowing your financial performance. Banks will not trust you if you have unpaid bills and delinquent accounts. If your records show that you have the ability to pay a loan, the bank will not have any second thoughts of approving your loan application. However, if your records indicate that you are running low on capital, it will be difficult for you to take out a loan.

It protects your small business.

Can you imagine operating your business without hiring a qualified person to take care of your books on a daily basis? Can you be confident that your business is on the right track if no one ensures that your checks will not bounce and you have enough capital for expansion? Will you be able to have a good night’s sleep knowing that you are falling behind your payment schedule as you do not have a bookkeeper to remind you when your payment is due? Not having up-to-date records will run you the risk of losing money. Business growth opportunities are missed and payments will not be made in a timely manner.

Bookkeeping should not be underestimated as it is an integral part of every business regardless of the size. If ever you find yourself ignoring bookkeeping, think about its repercussions. Without bookkeeping, your business will suffer from the lack of financial stability for sure.

3 Reasons Why Your Business Should Automate Bookkeeping

Automation is one of the biggest trends that made a mark in the bookkeeping industry and with its rapid growth, it is no surprise that many business owners no longer hesitate to grab hold of this new opportunity to keep their financial activities in check. Although human adoption seems to be slower as some businesses are still keeping traditional bookkeeping systems, incorporating automation into your workflow makes a huge difference. Here are three reasons to introduce automation to your bookkeeping system.

1. Save Money

Small business owners try to reduce expenses by handling all of the tasks as much as possible. However, as the company grows, businesses find it difficult to keep up, hence a bookkeeper becomes a need. One bookkeeper cannot handle all the workload and hiring another bookkeeper means spending more money. Automating your workflow will help you standardise your process so you don’t have to worry about your financial status. The information you need from your monthly bank statements will be available for download.

2. Save Time

Reducing repetitive tasks is one of the benefits of automating your bookkeeping system. Imagine how much time you can save from doing away with manual jobs. Automated bookkeeping allows you to generate accurate information that you can access and review at your convenience. However, it is important to remember that automated coding does not necessarily guarantee accuracy as you still need to review monthly transactions. Keep in mind that the purpose of automation is to finish a bookkeeping task the quickest way possible, but checking information to ensure there are no missing transactions is still required.

3. Freedom

The best thing about automated bookkeeping is that you will no longer have to wait for your bookkeeper to provide you information because you can gain access to valuable information using a cloud app. You can even meet with clients monthly to discuss trends and results based on the financial reports you have gathered. As a result, you can set a plan so you can handle cash flow wisely. Keeping the books up to date will never be a problem because it only requires minimal management. With less time and attention required in keeping numbers up to date, you can surely take care of other aspects of your business.

One thing that deters some small business owners from automating bookkeeping is the fear of replacing the bookkeeping work. Since you switch from traditional to modern bookkeeping, you need to learn new processes to appreciate the benefits that automation provides. In the long run, business owners will be able to understand how automation can improve their lives.

4 Reasons Your Small Business Failed To Grow

Most small business owners have big hopes and dreams about growing their business, but only a small fraction of entrepreneurs reach the peak of success. Too many of these businesses fail. It is a sad fact that 60% of small businesses could barely operate within the first three years of starting according to the Australian Bureau of Statistics. Sole proprietors have much lower survival rate than other types of business ownership.

Since there are only a few businesses that flourish, what does it take to survive and thrive? Successful business owners have a set of best practices that they regularly follow: investing in the right business tools, setting goals, planning for business growth and the list goes on.

In cases where business fails to grow, there are top 4 reasons they could not survive:

1. Lack of systems and process

Small businesses have to keep track of every transaction especially if it involves money. Having systems and processes in place ensures products and services are consistently managed. Small business owners are responsible for inventory management, accounts payable, accounts receivable, marketing, payroll and more. Unlike large companies that can already afford to hire people to do these jobs, small businesses have to juggle these tasks at the same time. There are three things that failed small businesses fail to implement: comprehensive bookkeeping process, customer relationship management system and inventory management system.

2. Not having enough funds

It is difficult for business owners to open doors to new customers without sufficient funds. Most businesses fail because they underestimate the amount of cash it takes to maintaing a business. Financing supports inventory purchases, business expansion, startup costs and business improvements. It is imperative that you plan the amount of capital that starting a small business requires. This way you can anticipate other expenses without breaking the bank.

3. Failure to adapt

Even if your small business has savored its initial success, it does not guarantee continued success. When you fail to monitor industry trends and changes, this is when you start falling behind your competitors. It is not uncommon for small business owners to wear many different hats and struggling with managing their time. This is why preparing for the changes becomes takes a backseat. When one area becomes obsolete, all aspects of the business become affected. Small businesses must be prepared to beat the competition by staying ahead of market trends.

4. Not using modern technology

When it comes to marketing your products and services, taking advantage of modern technology is necessary. It is difficult for small businesses to compete with big company because they do not have data-driven marketing. Even a simple task such as creating a website matters when it comes to keeping your product available to prospects. If your business does not have a mobile-friendly website, it will be difficult for you to keep up wth the giants in the business industry.

The Difference Cloud Bookkeeping And Traditional Methods

Cloud computing is one of the business trends that continue to thrive. All kinds of businesses utilise cloud not only to connect with customers but also to make business practices more efficient. In a study conducted by Computerworld, 42% of IT decision makers increased spending on Cloud computing in 2015.

Bookkeeping is one of the aspects of your business that will benefit from cloud solutions. You can manage your finances easily and access data anywhere.

Cloud Bookkeeping Vs Traditional Bookkeeping

Although cloud technology is a buzzword, only a few will be able to understand what it really does to your business. Cloud stores data and other essential financial information, making it available to business owners and employees so long as there is access to the Internet. Unlike traditional bookkeeping software that requires one dedicated hard drive to store or record financial data, cloud bookkeeping software is Internet-based. With that said, it does not affect your existing storage.

When it comes to costs, cloud software is more affordable because it does not require additional software or hardware to run it. In the event your computer crashes, your data will remain secure because cloud-based bookkeeping programs will back up your data automatically. You can also use the cloud-based solutions on many different platforms, something that traditional bookkeeping software cannot offer.

When can you maximise the benefits of cloud-based software?

As they say, cloud-based solutions are not for everyone. When you are making a buying decision, it is essential to assess your business needs before you invest in cloud bookkeeping software.

  • If your company has a limited budget, investing in cloud bookkeeping software is the way to go because it costs less over time.
  • Business owners who have remote workers can also take advantage of the flexibility of cloud-based solutions because it can be accessed anytime and anywhere.
  • For small companies that are concerned about security, many cloud-based programs can offer increased levels of security to keep your data protected against threats.

The fear of embracing cloud technology

For business owners who are not familiar with on-premise financial system such as Cloud ERP, letting go of traditional bookkeeping methods is a difficult decision to make. Some concerns being raised include availability, security, ownership and location of financial data, software updates and getting used to a new financial system.

However, cloud does not give organizations a hard time adapting to change. Even smaller firms can use cloud bookkeeping technology without undergoing extensive training. It also offers a good number of benefits such as scalability and flexibility. You can even gain better control of your finances because information is available in real time.

Startup Failure: 4 Reasons Your Small Business Struggle To Survive

Yesterday you were filled with enthusiasm, excited about the idea of running your business, but that excitement was abruptly replaced by disappointment as your boat suddenly sinks to the bottom. What have you done to make your business take a nose dive? What should have been done to ensure business survival?

It is disheartening to discover that 8 out of 10 small business owners fail within the first 18 months according to a study conducted by Bloomberg. At an alarming rate of 80%, you cannot help but ask: What did I do or What did I not do?

Another study also discovered that only 50 percent of small businesses barely make it to the five-year mark and only one-third survive the tenth year of running their business.

According to Forbes, each month, more than 500,000 businesses are started. Unfortunately, many of them fail.

Here’s why:

1. Poor Management

Putting up your own business is not a decision you make on the spur of the moment. It takes years of planning and analysing. Everyone can say they have what it takes to be a business owner, but once they are confronted by problems with cash flow, taxes and payroll, they choose flight over fight.

Business management encompasses a lot of things. You can be good at selling, but hey, there are still other business aspects you should not overlook such as hiring and managing employees, purchasing, production and more. Did you make the cut?

When you start your own business, educate yourself on skills you lack. Also, do not forget about your employees. Without them, you will not be able to accomplish your goals.

Employee engagement should not be ignored. Be mindful of the leaders you hire to manage your employees. Do they encourage productivity or are they the reason for employees’ lack of motivation?

2. No Strategic Planning

A business plan is critical to all businesses. Even if you are a seasoned entrepreneur, you are not going to be immune to problems. A business plan will help you analyse workforce needs, competition, budget, promotional activities and other business components. If you decide to expand your business, bankers will also request a business plan from you before you can secure additional capital.

3. Starting A Business For The Wrong Reasons

What is your primary reason for starting your own business? Is it making a lot of money? Pursuing your passion? Spending more time with your family? These are benefits you reap from being a business owner, but you might have failed to realise that it will take years of hard work before you can savor success. When starting your own business, you need to have the right reasons: love and passion for what you will be doing, drive and determination and ability to face failures.

4. Insufficient Operating Funds

You may have the passion and skill to become a successful business owner, but without sufficient capital, launching your business will be a big challenge. Although it takes a year or two for your business to finally take off, you should also take the costs of staying in business into consideration.

Self-made millionaires have a positive mindset, determination and drive to succeed. They also view mistakes as an opportunity to learn and grow. There is no secret sauce to becoming a successful business owner. If you think that failure is never an option, you will do whatever it takes to succeed.

Which Bookkeeping Software Is Right For You?

Bookkeeping may not be your top priority because your small business is not as complicated as large and established companies. One mistake that business owners make is taking bookkeeping for granted for the belief that it will not hurt a small business.

However, with the stiff competition going on, no business, regardless of size can remain complacent. If you dread bookkeeping, you no longer have to spend your day working on manual and repetitive tasks. Bookkeeping software will make your daily  life easy. Unfortunately, choosing the right software can be complicated. Narrow down your options by considering the following points.

1. How much are you willing to spend on bookkeeping software?

Before you can explore your options, you will need to analyse your budget. Depending on your business needs, the price will vary from feature to feature.

The more features offered, the more it costs. Avoid choosing software loaded with features if you are not going to use all of them because it will be a complete waste of money. Some software providers offer a free trial or demo so you will know the features you need for your business.

Aside from the features, you will also need to check how you are going to pay for the service. Additional updates may also require an extra fee. Find out if you can purchase packages with a comprehensive pricing structure. For most business, paying a monthly fee is the most preferred payment term.

2. Is it user-friendly?

Not everyone enjoys manual to digital transformation. This is why choosing the best software for your business also involves knowing how to use it. The right software will enable you to learn bookkeeping over a short period of time. You do not have to spend your workweek learning bookkeeping.

The right software helps you track your income and expenses. It will also help you record your daily transaction. If you cannot make smart financial decision, it only means that your software solution is not doing an effective job.

3. Can you access your financial information whenever and wherever?

The digital era makes it easy for business owners to run their business even outside of the office. Flexibility brings convenience and as a small business owner, your software selection should also depend on the application’s ability to give you access to your financial information on your mobile device.

Aside from instant access to your reports, the software should also give you the option to share the information with your bookkeeper and business partners. While applications capable of giving you access to information from any device is a huge advantage, security must also be prioritised. Confidential records must be kept safe and secure. It will be useless to purchase bookkeeping software if it cannot create layers of protection to sensitive data.

Once you provide answers to these questions, the process of choosing bookkeeping software will be a lot easier for you.

How To Protect Your Business From Fraud?

Small businesses are vulnerable to fraud and because there are too many priorities to think about, the company’s level of security has to take a backseat. Aside from investing in high levels of security, there are also other practices your company should follow to reduce the risk of fraud.  There are many types of fraud that a small business may face. Fortunately, there are ways to avoid or at least minimise them.

Set Boundaries

Shared passwords increase the risk of fraud. Setting clear boundaries decreases the likelihood of fraud. A code of ethics may be difficult to follow for small business owners. If expectations are not properly set, it will be difficult for you and your employees to draw the line. Boundaries do not only protect you against fraud but your employees as well. Putting rigid policies in place will prevent instances in which you say one thing and enforce another. A code of ethics also take you in the right direction in the event matters are taken to court. When you have encountered breach of agreement, the first step you will take is to document it.

Verify Reports and Receipts

A bookkeeper can keep things organised, but this does not mean that you will no longer actively participate in reviewing reports. Being hands-on allows you to prevent oversight. If transactions are not authorised, the reports will clearly show where your business is headed. Deposits, invoicing and even outside audits must be properly verified. In the long run, you will be able to uncover fraud or even prevent it from taking place as your employees are fully aware you are also doing a personal audit.

Perform a Background Check

It is not easy to hire employees especially for small business owners. A basic resume can be peppered with impressive descriptions to win the nod of employers. References are important as it enables you to know a potential employees work ethics. Before you consider hiring an applicant, the conversation must be enough for you to gauge their character. More due diligence is essential if the job requires additional responsibility.

It takes a lot of hardwork to run a small business successfully. Fraudulent transaction is one thing to worry about. There are even businesses that discover fraud when it is already too late. Aside from breaking up essential tasks, setting clear expectations is also important. Violations of polices must not be tolerated so employees know you are serious about implementing stricter rules.