Keeping track of all the different elements of a business can be a complex and time-consuming process. Most importantly, the process of tracking where money goes is extremely taxing and can lead to serious issues if not done properly. This is why it’s important that small to medium-sized enterprises (SMEs) have comprehensive bookkeeping.
Bookkeeping saves SME founders from panicking during tax season, guarantees legal compliance and provides you with the clean data you need to make smart, profitable decisions for growth. Without comprehensive bookkeeping, you are risking failure and non-compliance.
In this article, we look at what bookkeeping is and why SMEs need bookkeeping, and provide you with a checklist you can follow to ensure your bookkeeping is up to par.
What is Bookkeeping?
Bookkeeping involves the day-to-day recording and reporting of an organisation’s financial information, and it is different to accounting, which is the process of using the business’ data to establish its financial position and make decisions about how the finances are managed.
Bookkeeping involves a variety of activities, including:
- Keeping sales and purchase ledgers to track income and expenses
- Monitoring cash flow
- Making payments to suppliers
- Chasing payments from customers
- Ensuring the business pays its taxes on time and pays the correct amount due
- Claiming the tax back against business expenses
- Managing staff payroll and paying and reporting pay-as-you-earn (PAYE)
Why Small Businesses Need to Do Bookkeeping
For SMEs, bookkeeping is necessary for the following reasons:
- It enables the business to keep on top of money owed to suppliers and from customers, understand its cash position and cash flow, and measure its financial performance.
- Ensures the business does not fall foul of late charges or penalties or miss other mandatory expenses, such as business rates.
- Provides the business with the records and information it will need to secure loans and credit from banks and suppliers or grants from public entities.
- Allows the business to plan properly. If you don’t know where you stand financially, how can you make the big decisions that will determine the long-term success of your business?
- It gives the business the information it needs to hire more staff, accrue assets, acquire other businesses and even buy property.
- Provides essential data that the business needs to grow.
Bookkeeping Checklist for SMEs
Depending on the size of your business, you typically do bookkeeping for them daily, weekly, monthly, quarterly or yearly. The following are checklists containing the tasks and steps involved for each bookkeeping frequency.
Daily Bookkeeping Checklist
Tasks included in a daily bookkeeping checklist are:
- Record daily transactions: Document all the company’s daily financial transactions, as this real-time recording helps maintain accurate financial records.
- Update cash flow: Track daily cash flow movements, including money coming in and going out. This detailed record helps monitor the company’s financial health and promptly identify irregularities.
- Deposit cheques and cash: Handle, record, and deposit incoming payments into the company’s accounts. This helps you maintain proper cash flow management, prevent loss or misplacement of funds, and provides an accurate record of all transactions.
The above are all the things you need for bookkeeping on a daily basis. If you don’t, you need to start immediately to ensure you have a clear picture of your business’ daily cash flow.
Weekly Bookkeeping Checklist
For weekly bookkeeping, you should:
- Pay bills: Prompt payment of invoices ensures good relationships with suppliers and maintains a positive cash flow for the business. You can also avoid unnecessary late fees or disruptions of goods and services.
- Publish all receipts: Collect, organise, verify and store all receipts related to business expenses and income. That way, the business has a comprehensive record of financial transactions for audits, tax purposes, or financial analysis.
- Review accounts payable: This means verifying and managing the money the business owes to its suppliers or vendors. It provides an accurate picture of the business’s financial obligations.
- Reconcile point-of-sale (POS) system: Analyse your company’s internal financial records against the POS system data to discover discrepancies. This practice ensures all sales transactions are accurately recorded and accounted for.
- Reconcile merchant accounts (if applicable): If you have any accounts such as an account with a payment gateway, check the internal statements alongside the payment account statements to see if there is a mismatch.
Monthly Bookkeeping Checklist
These are the tasks included in a monthly bookkeeping checklist:
- Review bank, credit card and loan statements: Gather the bank, credit card, and loan statements for the previous month and examine them for errors.
- Prepare accounts payable: Compile, organise and resolve all outstanding payments to suppliers and vendors by doing the following:
1. Publish all receipts from your accounting app: Use a digital receipt management system to capture, categorise and store receipts electronically. Then, during the review of bills and expenses for accounts payable, refer to the app’s receipts to confirm the charges’ accuracy.
2. Review accounts payable report and pay bills: Generate an accounts payable report from your accounting system and execute payments according to the report. Once done, record the payment details in your client’s accounting system, linking the payment to the respective bill or invoice.
3. Reconcile accounts payable against supplier statements.
- Review accounts receivable: The reverse of accounts payable, it involves examining outstanding invoices and payments due from clients or customers. The purpose is to collect timely payments, detect overdue ones, and keep a healthy cash flow.
- Categorise uncategorised expenses: Assign proper categories to expenses that were not initially classified. This will show where the business allocates funds to support budgeting decisions, financial analysis, and tax reporting. It is crucial for accurate financial reporting and decision-making.
- Reconcile bank accounts: This guarantees the accuracy of all financial transactions and contributes to the business’s financial integrity.
- Reconcile credit card transactions: Compare your company’s internal financial records with credit card statements to identify irregularities.
- Reconcile POS system: Analyse the company’s internal financial records against the POS system data to discover discrepancies. This practice ensures all sales transactions are accurately recorded and accounted for.
- Reconcile other key balance sheet accounts: Your clients may have loans, government liabilities, shareholder loans, and the like, and reconciling them will ensure the accuracy of these accounts.
- Balance the general ledger against the reconciliation end balances and sub-ledger reports: Verifying end balances match the trial balance is a critical step in ensuring the reliability and integrity of financial information. Verifying monthly will make it much quicker to spot irregularities than waiting until the year-end when much more data and possible hiccups have piled up.
- Create and compile financial reports: Run reports and review all financial data, including (but not limited to) profit and loss statements, balance sheet reports, and cash flow statements. This lets you gain valuable insights into the business’s financial performance and help your clients make informed decisions. These reports provide a snapshot of the company’s financial health, aiding in compliance, strategic planning, budgeting, and overall financial management.
- Share reports and insights with clients: Ensure that reports and analyses are shared with your clients and that they have a copy of the reports under their custody.
- Close books with a password: Closing the books with a password ensures that there is a warning to someone changing transactions in a past period. In the event that they override the close, there will be an Exceptions to Closed Period report.
Yearly Bookkeeping Checklist
For your yearly bookkeeping checklist, the following must be done:
- Review year-end bank and credit card statements: At the end of the year, conduct a thorough review of bank and credit card statements to identify issues or areas of improvement. This practice helps with decision-making for the future and facilitates year-end reporting.
- Ensure monthly bookkeeping is complete: Make sure that all monthly bookkeeping tasks like account reconciliation, payables, and receivables have been successfully completed throughout the year. This is critical to maintaining financial health and managing your client’s business effectively.
- Update your bookkeeping (if necessary): Make any necessary adjustments or corrections to the financial records to reflect the most recent transactions and balances. Correct any errors or omissions in your bookkeeping so the financial data is up-to-date.
- Run and match reconciliation reports with statement balances: This is an important step in verifying financial records’ accuracy. It involves comparing the reconciled accounts to the statement balances to discover inconsistencies.
- Balance the general ledger against the reconciliation end balances and the sub-ledger reports: This should be verified at year-end if it has been done monthly.
- Create and complete draft financial reports: Generate reports with a summary of financial data to present the business’s financial status and performance accurately.
- Process year-end data: Compile and review all your financial information from the entire year for accuracy to assess financial performance and plan for the upcoming year.
- Verify prior-year financials match the prior year’s tax return: Ensure there is an alignment with data from the previous year and its tax return to ensure consistency and accuracy between financial reporting and tax obligations. This helps maintain compliance with tax regulations, minimises the risk of penalties or audits, and provides a reliable financial foundation for future planning.
- Prepare and share year-end financial summary: Compile a comprehensive overview of your company’s financial performance and position throughout the year.
- Complete year-end meeting with client: Once you have shared the summary internally and with clients, set up a client meeting to discuss the report, address any concerns, and plan for the upcoming year. This allows both of you to align on strategies for continued success.
- Get final sign-off on reports: Have your clients sign the final reports and tuck them away, with one copy for them to have and one for your firm.
- Close the books with a password: If these are annual engagements and you are not closing the books with a password monthly, ensure you do it at year-end.
Bookkeeping is the backbone of your business’ success and survival. It saves you from being behind on taxes, guarantees legal compliance and gives you a clear data presentation needed to make smarter, profitable decisions for growth.
Keeping track of all the different elements of a business can be a complex and time-consuming process. Most importantly, the process of tracking where money… Read More
