Balancing the Books is Easier With These 7 Tips

There are many elements to keeping a successful business afloat but few are more important than making sure your accounts are in check. Balancing the books ensures the company has the cash flow and financial freedom it needs, while also helping to monitor expenses.

The process can be time-consuming and frustrating at times but there are ways you can take some of the stress out of all the number crunching. 

What is bookkeeping? 

Bookkeeping is a critical aspect of any business. It involves recording and organizing financial transactions, such as sales, expenses and payments. Accurate bookkeeping ensures that a business or business owner can track their financial health and make informed decisions. Without proper bookkeeping, an organization or business owner may not know how much money is coming in or going out, which can lead to financial trouble. 

Bookkeeping vs accounting 

Bookkeeping and accounting are two distinct functions that are essential for the smooth functioning of any business. While both deal with financial transactions, they have different objectives and processes. Bookkeeping is primarily concerned with recording and organizing financial transactions, while accounting involves analyzing, interpreting and reporting on financial data. 

Bookkeeping is the process of recording and classifying financial transactions such as purchases, sales, receipts and payments. It's the first step in the accounting process and involves creating systematic and organized financial records. Bookkeeping includes tasks such as maintaining ledgers, reconciling bank statements and recording payroll transactions. It's critical to ensure that all financial transactions are accurately recorded in a timely manner to ensure that the accounting process runs smoothly. 

Accounting, on the other hand, involves analyzing and interpreting financial data to gain insights into the financial health of a company. In accounting, financial information is used to make informed decisions about the future direction of the company. Accounting also involves preparing financial statements such as balance sheets, income statements and cash flow statements. These statements provide a comprehensive overview of the financial health of the company and are used by stakeholders such as investors, creditors and management teams. 

Another key difference between bookkeeping and accounting is the accounting period. Bookkeeping is typically done on a daily or weekly basis, while accounting is done on a monthly, quarterly, or annual basis. This allows for a more comprehensive analysis of financial data and helps in identifying trends and patterns over time. 

While bookkeeping and accounting are closely related, they are distinct functions that require different skill sets and processes. Both functions are critical for the success of any business, and it's essential to have a skilled team to handle these tasks. 

What is meant by 'balancing the books'? 

One of the main goals of bookkeeping is to balance the books. This means that the total amount of money coming into the business should match the total amount of money going out. When accounting records are balanced, it provides a clear picture of a business's financial health. Additionally, balanced books make it easier to prepare financial statements, such as income statements and balance sheets, which can be used to assess a business's profitability and financial stability. 

Which bookkeeping system does your business need? 

Balancing the books is an essential aspect of any business, big or small. It's crucial to stay on top of your business accounts to ensure that your company is financially stable and profitable. However, managing accounts can be challenging, especially if you don't have an accounting team. Luckily, there are several different types of accounting system that you can use to streamline your accounting process and make it easier for you to balance the books. 

Manual accounting 

This system involves using pen and paper, ledgers and spreadsheets to record transactions, track expenses and create financial statements. While it is the most straightforward system, it's also prone to accounting mistakes, so it's essential to have an eye for detail and accuracy to avoid making any errors that could impact your business's financial health. 

Computerized accounting 

Accounting software can help record transactions, generate financial statements and track expenses, and along with being a more efficient and accurate system than manual accounting, it can also save you time and money in the long run. Additionally, many accounting software options offer various features like inventory tracking, invoicing and payroll management. 

Cloud-based accounting 

Cloud-based accounting allows you to access your business accounts from anywhere with an internet connection, making it ideal for businesses with remote teams or multiple locations. Moreover, cloud-based accounting software is usually more affordable than traditional accounting software, making it an excellent option for small businesses. 

7 tips to make balancing the books easier

1. Keep it separate

For many businesses, there can be a blurred line between personal and company expenses. Encouraging Managing Directors, CEOs, and anyone else that has access to the business account to use a dedicated company credit or debit card can make your life much easier. It will make the accounts process much more streamlined. It can be a difficult habit for people to get into but it will save you hours if you're able to keep business and personal finances separate.

2. Decide what income is

For many businesses, you need to decide whether to adopt traditional accounting practices or a cash basis. The former will have you report any income that you have invoiced during a certain accounting period, while the latter means you register work when you've been paid. This can avoid you having to pay tax on income that's been invoiced but you haven't actually received it yet. Depending on where your company operates, there may be further rules on how you can determine your income. Whichever option you choose, being consistent will make the accounts process easier for everyone.

3. Bookkeeping software

Finding the right bookkeeping software can be a key element of making accounts as streamlined as possible. Whether your company wants to expand its department as it grows to take on more finance specialists or will outsource certain elements, having somewhere where all your expenses and revenue are tracked will be useful. It can also help when it comes to presenting the financial situation to decision-makers. 

4. Schedule regular time in

Being a finance specialist, you have multiple balls to juggle, so it's important that you set aside regular time to go through the accounts. Just a 15-minute regular slot should allow you to organize the company's finances and not let things slip through the net. This also has the added benefit of giving you a much better understanding of the overall performance of the company.

5. Know when to ask for help

You can be the most skilled finance specialist possible, but there will still be times when you need to ask for help. This might be chasing up employees for expenses, getting decisions from company owners or having someone do more basic admin tasks, reaching out to others for help is essential if you're struggling. Taking this pressure off yourself will leave you much more time to focus on tasks that require your skill level and prevent mistakes from being made. 

6. Monitor your accounts receivable and accounts payable 

Monitoring receivable and payable accounts is crucial to ensuring that you have a steady stream of cash flow. Without proper monitoring, it can be difficult to keep track of who owes you money and when you can expect to receive payment. This can make balancing the books, managing your accounting records and avoiding cash flow problems much more challenging. 

What's more, monitoring accounts receivable and accounts payable can also help you identify patterns and trends in your business. For example, if you notice that a particular customer consistently pays late or has a high outstanding balance, you may need to reevaluate your relationship with them. 

7. Keeping track of all your accounts with a chart 

One of the most effective ways to ensure that your books are balanced and your finances are under control is by creating a detailed chart of your accounts. This chart is essentially a comprehensive list of all the accounts that you use in your business, including bank accounts, assets, liabilities and expenses. 

When you have a clear understanding of your accounts, it's much easier to reconcile your bank accounts and make sure that all of your transactions are accounted for. This can save you a lot of time and hassle during tax season and can also help you avoid costly mistakes that could hurt your business. 

In addition to helping you balance your books, a detailed chart of your accounts can also be invaluable when it comes to tracking your financial performance over time. By tracking your accounts over an accounting period, you can see how your business is performing and make informed decisions about future investments and expenditures.