In Pursuit of Profit
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Business resolutions tend to involve more achievable goals, but they are far less prevalent. Many business owners and managers de-prioritize professional resolutions because they do not perceive that they have the time available to devote to them. While business resolutions may be viewed as a superfluous task, they are actually seasonally-inspired exercises in goal setting, especially when they involve financial health considerations.
Much like a strategic business goal, a bookkeeping-related New Year’s resolution requires organizational awareness, mindful planning, and consistent execution.
These 10 financial resolutions really serve as bookkeeping best practices year-round, but they are especially beneficial to pursue at the beginning of the year:
1) Prepare for Tax Season
With tax season quickly approaching it is never too early to start preparing. Obtain and begin working on appropriate state and federal tax return documents and forms. Anything that can be started in advance of filing will save valuable time during tax season.
Do not forget to send 1099 forms to any contractors that have done more than $600 of work throughout the year. These forms should be mailed out by the end of January to give contractors enough time to file their own taxes.
Once taxes are filed, keep copies in case they are needed again for any reason. Tax forms should be filed away year-after-year to maintain accurate ongoing records.
2) Get Organized
Keep complete records of bills, receipts, and invoices to maintain accurate accounts payable (AP) and accounts receivable (AR) information for the year to come. When these items are unorganized, they can hinder financial record accuracy and lead to cash flow shortages.
For businesses with significant cash inflows and outflows, an accounting software can automatically log and categorize transactions to enable better financial organization. Many software programs integrate with banks and include invoicing and payment options that can be configured to suit an individual business’s needs. However, if a business’s financial records are in disarray, a third-party accountant may need to be hired to clean up the mess before implementing software to provide a solid foundation.
3) Perform Regular Bank Reconciliations
Bank reconciliations should be performed every month, or at least every quarter. However, the busy holiday season can thwart even the best financial intentions. If scheduled bank reconciliations have been missed, the beginning of the year is the time to catch up. Perform a much-needed reconciliation of cash and credit account balances and plan to resume a normal schedule.
During the reconciliation look for errors and account for cash in-transit. Clean up any identified issues immediately to avoid further issues later with reporting.
4) Clean Up Accounts Receivables (AR)
Outstanding AR from the previous year should be categorized by the amount of time it is past due to determine what can reasonably be collected and what should be written off. Accounts that are less than 30 days past due should be contacted and reminded to pay, accounts that are 30-90 days past due will likely require pursuing collections, and accounts that are more than 90 days past due may need to be written off as bad debt.
Work with accounts that have large outstanding balances on extending new payment terms to increase the chance of being able to settle AR. While it is not ideal to have to wait even longer for payment that is already past due, remember that getting paid over a longer timeframe is better than not getting paid at all.
5) Create a Functional Chart of Accounts
Compile a list of all accounts that are included in financial transactions for the business to allow better financial oversight for the coming year. Consider the entire business operation as one entity instead of segmenting business teams or product lines. Keep it simple by only creating as many accounts as you need.
6) Update Payroll
Stop paying employees with checks. Switch to direct deposit instead.
Updating payroll has numerous benefits including greater employee satisfaction, reduced costs, and more streamlined bookkeeping. Direct deposit payroll can be set up in any number of HR and account software programs. Additionally, digital payroll management makes it easier to manage not only wages but also benefits and reimbursements for hourly and salaried employees, saving further time and money during the busiest times of the year when seasonal employees are added.
7) Segregate Responsibilities
The most important accounting control system is ensuring that duties are divided among employees so that anyone handling cash is removed from the accounting functions that report and reconcile those cash functions. Make this the year to strategically delegate responsibilities.
In small businesses employees often carry out numerous job functions, which can create risky financial overlap even when fraud is not present. Unintentional errors can be carried through financial processes when one person (or a few people) are responsible for numerous finance-related activities. If a business does not have enough personnel to divide duties, outsource bookkeeping or hire a third-party accounting solution to do reporting and conduct financial audits.
8) Track Inventory
Generating accurate asset figures should be an ongoing effort to reduce fraud risk and optimize business operations. However, if there is not a formal system in place to track inventory or if inventory counting has become muddled with errors or outdated information, use the new year as a fresh start to track numbers correctly. Understand that inventory is not just about knowing how many of which kinds of assets the business has, it also involves:
Equip teams to cross-functionally collaborate on inventory reporting and planning to simplify accounting in the coming year.
9) Conduct an Audit
Audits do not have to be frightening, especially if they are on a voluntary basis. Self-auditing is a practice that larger organizations use to examine their finances and financial practices from the perspective of an outsider. The information collected indicates where the company is succeeding and where improvements should be made. If a business does not have the financial expertise in-house that is needed to perform an audit, it can always outsource auditing functions. Hiring an accounting company is a shrewd way to identify areas where financial health can be improved, and financial functions can be streamlined.
10) Separate Personal Finances
It is no secret that personal and business finances should always be kept separate; however, for solopreneurs and micro-businesses, the lines between the two can become blurred without careful financial control over business accounts. If there are any instances where funds were moved between personal and business bank accounts, book the appropriate journal entries as early in the year as possible to either pay a wage from the business or enter additional owner equity into the business.
The start of a new year is also a key time to shop around for business banking incentives. Businesses that already have bank accounts may find higher yielding interest rates, reduced banking fees, and more flexible terms after the New Year when banks are making the push to acquire new accounts.
#11 - BONUS: Deduct Expenses Correctly
Before filing taxes, ensure that any assets owned for both business and personal use are deducted appropriately for their usage. Overdoing deductions, whether intentionally or unintentionally, increases your risk for a tax audit.
Keep detailed logs of usage for items like cell phones, cars, and home office spaces to determine what percentage of their use was for business purposes. Only deduct that percentage of the total cost when filing taxes to maintain a clear separation between personal and business expenses.
If you need help with your bookkeeping New Year Resolutions, we are happy to give you support! Please contact us here.