Owning a business, particularly a small one, presents a number of challenges. Among them is managing your financials and staying on top of vendors, receipts, and expenses. Even if you use accounting software and have a bookkeeper, as the business owner you need to establish important accounting processes to manage your finances. Below are ten best practices designed to keep your accounts in order and reduce the risk of fraud in your business:
- Keep personal and business income and purchases separate. The occasional use of the corporate credit card for a personal purchase or use of your personal account to pay for a business expense is not a huge issue as adjustments can be made to the books to properly record these items; however, a general rule is to keep a clear delineation between your business and personal funds.
- Establish internal controls. If certain aspects of your business finances are entrusted to your employees, ensure that there are internal controls in place, such as dual control of processes that involve receiving or distributing funds. As an example, the employee writing checks should not be reconciling accounts.
- Stay current with automatic bank downloads. Automatic transaction downloads are a feature of most accounting software. While it makes things easier and more convenient, be careful not to let those transactions pile up. It can be a daunting task to classify hundreds of transactions after letting them accumulate in your bank feeds for a few months. Make a habit of classifying bank downloads weekly or monthly.
- Reconcile your bank accounts. When keeping an eye on your business cash balances, you may compare the register in the accounting software to your bank balance. Utilize the reconciliation feature within the software each month so you can timely catch any duplications, circular reference transfers (to and from the same account), or other abnormalities.
- Review your financial reports. Income statements (also known as profit & loss) and balance sheets should be reviewed each month. Most software offers the option of comparing different periods to better analyze trends. There are numerous other reports, such as payables and receivables (if applicable), that will help you keep an eye on the health of your business.
- Keep detailed payable and receivable records. If you use the payables and receivables features in your accounting software, be sure they are accurate. In addition to electronic records, keep all receivable and payable hard copy original records. Also referred to as source documents, hard copy documents can be invaluable if there is a question about an invoice.
- Back up your accounting software. This is not an issue if you have a cloud-based accounting solution, such as Quickbooks Online or Xero, but if you have desktop software, be sure that this data is being backed up regularly.
- Obtain form W9 from your contractors and temporary workers. Form W9 contains basic data, such as name, address, and tax ID number, for your vendors, making it more efficient to prepare 1099Misc or 1099NEC forms each year.
- Review payroll and tax notices as they come in. There can often be a lot of unnecessary paperwork and emails from payroll and tax agencies, so much so that these messages become “white noise.” Regardless, it is important to take a quick glance so you do not miss information on important tax breaks, deadlines, and updates due to unopened mail or unread emails.
- Meet with tax professional regularly for tax planning. Your accountant or CPA can help review your business goals and ensure you have the correct processes and internal controls in place. Meeting with your tax professional regularly, in addition to following the tips above to keep accurate, up-to-date books and financials, will help you save time and money.
Price Kong is here to help. Our bookkeepers, accountants, and CPAs are available to assist with all of your accounting and tax needs. Contact us at 602.776.6300 or [email protected].
Price Kong was established in Phoenix in 1967. Since then, our team has grown to 50 professionals and includes seventeen CPAs. The depth of our audit and tax practices allows us to provide services to clients in numerous industries, of a wide-range of sizes, and with revenues ranging from $1 million to over $500 million.
Price Kong is committed to providing personalized service and advice to our clients. Our full range of accounting and consulting services enables us to assist clients with understanding unique situation and ensure they receive expert support, regardless of the engagement or project. Price Kong is a member of Allinial Global, a consortium of 90 North American Certified Public Accounting firms, and numerous professional and industry organizations.