Small business tip of the week: Keeping the books
July 27, 2010 at 2:27 a.m.
Keeping books in small business is low on the priority list for most small business owners.
Most owners have gotten into a business they have a passion for, either a passion for the product or the service provided. There is rarely a passion for the record keeping needed for the necessary reporting or analysis businesses need. Accounting, bookkeeping or record keeping - regardless of what you call it - is an important function to a small business owner.
When a business owner decides to "set up the books," there are a few things to keep in mind.
First, and possibly foremost, is to keep the process simple. If the business owner does not understand his or her system, it will not be used or truly implemented.
Simple means different things to different people. To me, it means a method of keeping up with your daily income and expenses in an organized method, with a minimum number of accounts. The record keeping also needs to be done on a consistent basis and to be recorded accurately. In most cases this is a daily activity, either at the end of each day or the beginning of the next day.
Every small business owner also needs to have controls in place. A control would be something as simple as no one signs checks but the owner.
Remember, you will need to keep up with what your sales are, which of your customers owe you and what you owe your vendors.
Whatever else happens in business today, cash is still king and the controls you put in place allow you to protect your cash.
Because of this, the bank statement is vital to your business record keeping. All of your funds go in and out of your bank account. Your record keeping and ability to pay your bills are tied to not only having your bank account, but to an accurate bank account balance. The only way to verify your balance is to reconcile your bank account. The correct time to do this is when you receive your statement from the bank. Businesses traditionally get their statements on the first of the month.
Reconciling a statement is simply verifying the checks, which have gone through the bank for accuracy, subtracting any checks which have not cleared, and adding any deposits back in. The balance you end up with should match your checkbook balance.
Bookkeeping becomes more complex as your business grows. The need for professional help is necessary. From the beginning you should have a certified public accountant or professional bookkeeper on your team to help manage your business.
For help in keeping the books or other issues impacting your business, contact the University of Houston-Victoria Small Business Development Center.
Joe Humphreys is associate director of the University of Houston-Victoria Small Business Development Center.