In times of economic downturns, businesses start looking for ways to reduce their expenses. While reviewing your business activities on a regular basis is absolutely essential to your business success at all times, it is even more important in times like we are facing today.
Be careful, however, when cutting costs that you are not cutting those that are most important to your business. Many businesses will decide to cut their bookkeeping expenses and “let the spouse take over the books”, “figure it out myself” or “let the accountant deal with it at tax time”. All of these plans will cost your business more than it will save in the long run and here’s why:
- Often the spouse or business owner thinks that doing books can’t be that hard so they will take care of it themselves. Often they find that there really is more to bookkeeping than they originally thought. Bank statements need to be reconciled, Accounts Receivable and Accounts Payable need to be tracked, payroll can be complicated, source deductions need to be calculated, GST returns need to be filed, the sale or purchase of some items need to be recorded in capital assets, records need to be organized and so on.
- Taking the time to look after their own bookkeeping keeps the business owners tied up with paperwork when it really is more important for them to be out working or selling their business to perspective customers. After all, those sales are what keeps the business operating, right? They can’t make a sale while reconciling a bank statement.
- In tougher times, businesses may need to apply for financing of some form or another. The first thing banks or other lending institutions will ask for are the
business financial statements. If the bookkeeping is not up to date, or the business owner is unsure of how to report the business activities, it can cost the business that needed loan! Especially in times like this, it is important to be able to supply the bank with the current information.
- Letting an accountant look after it at tax time will most definitely cost the business more than necessary. If an accountant has to wade through a year of receipts, invoices, statements etc., you can bet that will not come cheap. An accountant’s time is valuable and costly. Keep that time at a minimum so they can concentrate on helping with business decisions, financial planning and more. That cost is far more valuable than having them sort receipts!
So….rather than cutting the bookkeeping costs altogether, consider these pointers to help you reduce the cost for that service:
- When you pay a bill, get in the habit of writing on that bill with as many details as you can. How was it paid? Credit card? Business debit? Personal debit? Personal cash? Cheque? What cheque number? Date it was paid? Often we see receipts that don’t tell us what was purchased or we can’t decipher the abbreviations to determine what the item was. Make a note of what is was because in the event of an audit 3 years down the road, you will not remember and we may be recording it to the wrong expense account. Staple the paid receipt to the bill if you have it
- Get in the same habit for customer payments received. What account was it deposited to? What day was it deposited? What invoices have been paid with this payment? If you can attach the deposit slip to all the customer invoices that were paid in that deposit, then even better!
- Provide your bookkeeper with any outstanding sales invoices or bills to be paid. Your bookkeeper will want to provide you (and possibly your banker) with monthly reports regarding what is still receivable in your business and what is still payable.
- Sort your receipts by month, then by payment method. If it was paid by a credit card, attach it to the corresponding credit card statement. If it was paid by cheque through the bank account, then attach it to that bank statement and so on. Any receipts for business expenses that were paid with personal funds can be attached together in the corresponding month with a note to indicate that they were paid by personal means. It is important to record those business expenses and to track how much the business owes back to the shareholders/owners.
- Make notes on the bank or credit card statements regarding transactions that may not be self explanatory. If funds were transferred in or out, where did they come from or where did they go? If loan payments are withdrawn, which loan is it paying?
- If you do your own payroll, provide your bookkeeper with all of the payroll details for the month. What deductions were taken off the employee cheques? What advances were paid? When? With what cheque number? What source deduction payments were made? What are those detail amounts? When was it paid?
- Take your records to your bookkeeper on a timely (monthly) basis. It will be easier for you to remember what happened in your business in the last month than if you are asked for more details about a transaction that happened 6 months or a year ago. Your banker will thank you for the up to date records as well!
Following the above tips and spending a little more time prepping the paperwork for your bookkeeper will benefit you two-fold. Firstly, your books will be up to date in good order and secondly, you will have cut your bookkeeping costs. Both mean good news for your bottom line!!