Evaluating Your Bookkeeping System

Is your bookkeeping system doing the best job it can for you?

Do you have the right accounting system for your business? Your current bookkeeping system can either be helping or hindering your business right now!

The truth about the financial stance of your business, and its ultimate success depends on two things:

• How well you decided to keep your company’s books, and
• How well you have kept them.

Whether you are just starting out or have been in business a while, evaluating your bookkeeping system to ensure it is the best fit and helping you to maximize your business’s potential, is crucial for your business growth and development. Here are a few questions to ask yourself:

• Is the program software I am using for my business the right fit? The right fit should be easy to use, house all the features your business require, and allow you to gain insight into the wellness of your business through multiple reports.
• How easy is it for me to enter data? The best system for your business should allow for efficiency and save you time.
• Can I understand the language it speaks and the program’s functionality? I mean, is it an integrated system or do I need an accounting background to understand how the separate modules work? Your system should be user-friendly, even if you do not have an accounting background.
• Does it give me useful reporting? A good software system should be able to let you know how much you are making and spending, and why.
• Does my system meet government’s record retention requirements? Whether your information is on paper or is stored in an electronic version, it is your responsibility to retain records that an auditor can access – in the event of a tax audit.

Based on the answers to the above-mentioned questions, you may need to evaluate further:

What would make my business flow more efficiently?

• Do I continue to do my books myself or hire a bookkeeper?

• If I decide to hire, should I opt for a part-time, full-time, on the premises, off the premises, employee or freelance bookkeeper?
• If I decide to continue doing my books myself, should I change my current accounting software program? Should I use online (in the cloud) or offline on my desktop?

And what about your paperwork and documents? Are they trackable? Easy to locate? Do you need a formal filing system or will an informal receipts method work?

Any organized system will let you see if your revenue coming in covers your business expenses (including your draw) with some extra room left for a profit. Even simple systems will let know what your profit margin is.

Your system should let you break down your expenses by type so you can see where your largest outlays are. You need this important information if you are going to control your costs. Cutting costs may make sense in the short run but take the time to think about how will it affect your long range plans for your business.

Projecting your cash flow three to six months into the future will give you a heads up if a cash squeeze is coming, allowing you to be proactive and take action.

If your accounting system is doing its job, you should be able to see where your highest profits are so you can direct your time and money there instead of on the less profitable parts of your business. Or maybe you can brainstorm to see if there is a way to increase your profits in these areas.

Bottom Line:

Not keeping accurate, up-to-date books can give you a false sense of security and business health, and over time run your business into the ground. The way in which you conduct your business as well as keep your books and documents will help or hurt your business statistics on which you rely to make good business decisions.