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Most small business owners hate bookkeeping If you hate bookkeeping, you are not on your own. For most small business owners 'bookkeeping' is a major pain; a real chore. If you have to choose between selling your products and services or keeping your books in order - the books lose every time? But it would be good to know your cash position and know the bank balance before the statement arrives Have reports and guidance on your profitability? Would you play football, cricket or golf and not bother to keep the score? Of course not, we all want to be in control of our businesses, but for the small business owner this has never been easy. We have the perfect solution for you!

Isn't it best if my spouse does the bookkeeping? 

In many small businesses the owners spouse will keep the books. Of course, they want to help each other, and to keep costs to a minimum. However, this can sometimes be a bad move.

If they are competent and enjoy doing it - then good. But remember your business is your livelihood, it is important that the books are written up on a timely and accurate basis.

If the job is done by someone competent

A Accounting costs should be minimised, good books = an easier job

B You should be provided with useful information throughout the year. Such as:

The balance on your current account, taking into account cheques you have written which the bank don't yet know about. 

Your profit for the month, compared to the same month last year.

or Profit for the year to date, compared to the same period last year.

An aged debtors list.

The cost of paying someone competent to provide this information, perhaps just a few hours each month, can be a very rewarding investment.

Will buying Sage or Quickbooks or similar solve my bookkeeping problems? 

 Firstly, these and the other similar packages are marvelous tools for small business owners. However the purchase of the tool does not implement the system. If you are going to use the system 'in house' make sure you set off on the right track. Get someone experienced to help set up the 'chart of accounts' and the opening balances. Make sure you are confident on making entries and reconciling the bank account.

Be aware of the saying "rubbish in, rubbish out", bad books means more work at the year end. At the extreme, your accountant may have to cast the books aside, and re-write the whole years figures - expensive. 

We don't really need to reconcile the bank? 

"Reconciling the bank" just means making sure that the books are in agreement with the bank statements. The bank rarely make mistakes, so it usually means making sure you haven't missed anything in the bookkeeping.

And YES it absolutely has to be done. If you don't do it, your figures won't be reliable, and your accountant will have to do it, and he/she will charge for it. 

What 'accounts' do we need in our 'chart of accounts'?

The software normally sets up the essential balance sheet accounts, such as a bank current account, a VAT account and debtors and creditors. Often it is necessary to add a bank savings or second account. Also a cash account might need to be set up. If it isn't clear how to do this, just set up a new bank account, and call it 'cash'.

The profit and loss accounts can be tailored to your business. Don't have too many accounts, 20 to 30 is usually enough, 50 or more is probably too many. 

How can I protect myself from fraud? 

Unfortunately, fraud does sometimes happen in small businesses. It tends to happen when a busy business owner puts complete trust in someone, and completely 'leaves them to it'. The employee comes to realise that no one is really checking or overseeing what they are doing, and when a grievance occurs or money problems arise at home, they  succomb to temptation.

Firstly, keep the means of payment under your own control whilst your business is small enough. Keep your cheque books locked in a drawer. If someone else writes the cheques, check they are all accounted for, instruct that any defaced cheques should have 'cancelled' written on them and stapled at the back of the book, rather than thrown away. For electronic payments, keep the password private. Ask for original documentation to be presented (invoices, delivery notes, statements as appropriate) at the time you make payment.

When your business reaches a size that you cannot personally control the payments, make sure there is segregation of duties. For example one person enters the purchase invoices and prepares the payment run/cheques, a different person signs the cheques and reconciles the bank account. 

What reports should I be looking at?

The profit and loss account shows how well (or badly) things are going.  However, looking at a profit figure in isolation isn't really very useful. If you were to be told you were on a journey and you were currently in Darlington....would that be good or bad?  It's much the same with profit and loss. A figure doesn't mean very much unless you add the context of where you are coming from and where you are hoping to get to. So you really want to see a profit & loss account for the month compared to profit & loss for the same month last year. Or  look at year to date profit  & loss compared to year to date for the same period last year.

If you really want to get serious - plan what you want to achieve. You are much much more likely to achieve it if you plan for it and comit it to writing. The plan in the form of numbers is what is known as a budget.

 If you are serious about your business, and have a budget, look at a report showing year to date profit and loss against the budget.

Other reports you definitely should look at each month are the aged debtors report (how much your customers owe you and how old the debts are) and a sales by customer report (the Pareto principle usually applies where most of your sales will come from a small number of customers).

Should I have stock control? 

This is a difficult question to answer...........it depends.

Maintaining proper stock control is not easy, it requires a system and it requires discipline.  Computer system costs are now at a level where even the smallest shop can afford to implement a full stock control system. However do they have the technical ability to operate it and the motivation and discipline to stick with it?

For a business that is prepared to go through the 'pain barrier' the benefits are

•  Advise customers at time of ordering on stock situation
•  Reorder stock at the right time
•  Have the stock figure available each month for the accounts
•  Be aware of margins, and therefore get early warning on potential problems
•  Increase potential for bank borrowing, with security over stock

Do I need a seperate bank account for the business?

The short answer is YES.

HM Customs and Revenue would expect to see a seperate account for your business. In the event of an enquiry they would probably ask to see your business bank statements. If everything is in order it would be unusual to have to provide them with your private bank statements.

From your own point of view, it is much easier to seperate things and make sure all business expenses are included in the accounts if you run a seperate business bank account. 

How do I handle quotes/estimates?

If you are preparing quotes on a word processor, a proper system should make your business much more efficient. Your estimates should be easily converted into invoices (or part invoices). No more time wasted checking on the original quote.

 How do I handle credit control?

If your business gives credit to customers, then credit control is an important issue. Indeed, if you fail to address this, it could well lead to the failure of your business. You need to think about the following points:

• How do we decide whether to give a customer credit?
• How much credit to give each customer?
• How do we deal with customers who exceed their credit limit?
• Should we charge interest on overdue payments?
• Who deals with overdue accounts? 

 Look at an aged debtors report each month, so you can see any problems arising.

Implement a credit control policy which addresses the questions above. This will ensure you handle your credit account customers effectively and consistently.