Bookkeeping Best Practices
Growing a small or medium-sized enterprise is no easy task; it requires you, the business owner, to stay on top of everything if you want to ensure the company delivers services and products to the best of its ability. Accounting and bookkeeping is one of those behind-the-scenes operations that is essential, and failure to keep your books in order could likely lead you to miss vital IRS deadlines, the result of which is a hefty penalty that could seriously disrupt your business.
Below, we take a look at bookkeeping best practices to ensure your business is ready when it comes to tax season.
Make Sure the General Ledger Is Up to Date
Every organization has a general ledger that lists your accounts and the balance of every account. In this instance, account refers to the different types of financial components a business can have, which includes assets, liabilities, revenues, expenses, and equities.
There should be individual lines for outflow and inflow of money under each account, so every time a transaction is made (paying a bill or making a sale, for example), it should be recorded in the correct account in the general ledger. You then need to balance the accounts properly. When you keep your general ledger up to date, you’ll always know how much money your company actually has.
Create Financial Statements
Financial statements are known to be the official reports of the well-being of an organization and include the statement of cash flow, the balance sheet, and the income statement. You should produce these statements every quarter at a bare minimum, while many businesses generate them monthly as a means of tracking changes in expenses and income. Here is what each financial statement does:
- Statement of cash flow: how your company’s cash on hand has changed.
- Balance sheet: a list of your company’s physical assets, liabilities, and equities when the report is released.
- Income statement: shows the revenue and expenses of the business and lists a specific period’s profit or loss.
You should submit financial statements with your annual tax return; they are also an excellent way for managers and board members to analyze the company’s performance.
Hire an External Auditor
While you should also look to self-audit, it is good business practice to bring in an external auditor. The government requires a number of businesses to hire an external auditor to look at their books and financial statements. However, you should hire an external auditor even if it is not mandatory, as it is a great way to ensure your business is in good financial shape.
This independent entity will check transactions, review your general ledger, and correct oversights and mistakes. An external auditor will also check for cases of fraud, which ensures your business is trusted by external parties.
Perhaps the Number 1 bookkeeping practice is to keep your paperwork safe. Make sure your business uses separate boxes for every year on record and also keeps records in fireproof boxes. If you want your business to be a success, you need to follow the above bookkeeping protocols or risk the wrath of the IRS.