Why Accounting Should Be A Year-Round Work
One of the smartest investments you can make as a Small Business Owner is to engage an accountant to help you grow your business. This singular action will help you stay on top of your finances, and transform the numbers that run your business into insight you can use to improve it.
Where do you start when you consider setting up the accounting system of your business? What information should you give to the chief custodian of your accounting function? What value should this service provider add to your business, for the business to get the most from such expertise?
The answers to these questions depend on the type and nature of your business. Whatever they are, having year-round checklists is a good place to start. The checklists should cover the things you want to pass to the accountant, and what you want your accountant to put on the table in return. Whether you hire a full-time accountant or outsource the function, your main objective is to act and be guided by the need to make accounting a year-round work, not work that should wait until the last minute, to be done without plan or purpose.
While the end of the year is a good time to go through the books with your accountant, and get the inputs for planning the future of the business, it is even better for the Small Business Owner to maximise the value of the relationship by having a continuous dialogue with the provider of this service. The more time that the Small Business Owner spends on the finances of the business, the more successful the business will be.
Preparatory to creating the checklists for working with the accountant, the Small Business Owner must lay the foundation of this effort with two building blocks:
- Creation of folders or files. This is a key step in organising the finances of your business, and ought to start even before calling in an accountant. It is an essential to staying organised, not something the business does because it is tax time. Organising files for items like income, expenses, payroll, vendors, etc. create order, and save time and money.
- Investment in accounting software. This helps to make the accounting process easier, including recording transactions and creating invoices. This is an advance towards automating the accounting functions of the business.
With folders/files for the critical components of the accounting books, with an accounting software in place, it is time to make the following accounting checklists:
1. Daily Checklist. This makes time to tackle the daily bookkeeping items that give a snapshot of your accounts. It covers monitoring payments received, posting expenses, and placing receipts and sundry items in their respective folders or files. The accounting software can scan receipts, record transactions, produce invoices, and enable the accountant to access them. It should record transactions, and track what’s coming into the business, particularly payments received in cash, cheques, etc. and what’s going out, especially payments like marketing expenses, suppliers’ invoices, etc. These can be summarised on a weekly basis to show where the business stands.
2. Weekly Checklist. The weekly checklist helps the business to stay on top of what’s going out and what’s coming in, including routine chores like paying bills and credit collections. It includes review of cash flow, such as unpaid and upcoming payables to be aware of and un-settled and upcoming receivables to monitor.
3. Monthly Checklist.This involves balancing the cheque books, to be sure that the business’ balance agrees with the ending balance on your bank statement(s). It also involves reviewing invoices, to confirm if anyone is owing money for which the business should have received payment; review, for payment, of sales tax liability for the month; review of inventory, if applicable, to track best sellers and ensure adequate stock or plan markdown of high stock items; review profit and loss statements, and compare with existing budget; review the balance sheet; and back up the accounting software to safeguard the month’s work.
From the foregoing, the accountant should deliver the following results to the Small Business Owner on a monthly basis:
- Copy of bank reconciliation.
- Profit and Loss Statement.
- Balance Sheet.
- Cash Flow Reports.
- Budget versus Actual report of income and expenses.
- Review of tax payments for payroll, company income, and sales tax.
4. Quarterly Checklist. A list of deliverables from the accountant on a quarterly basis should include:
- Estimated tax payments for the quarter.
- Review and filing of payroll reports, including FIRS liabilities, for the quarter.
- Estimate, for filing, of income tax payments for the quarter.
- Computation, for payment, of sales tax liabilities for the quarter.
- Profit and Loss Statement for the quarter.
5. End of Year Checklist. This includes taking physical inventory of raw materials, finished goods or merchandise on hand, comparing and/or adjusting recordings in accounting system, and reports of earnings of employees and suppliers during the year. At year-end, the accountant should deliver the following to the Small Business Owner:
- Financial reports for the year.
- Listing of major purchases of fixed assets for calculation of depreciation.
- Review, for submission, of tax returns for the year.
- Listing of adjusting journal entries recorded or proposed for the accounting system.
The above-listed checklists outline what a small business needs to work with a professional to assure the accuracy of its books, the timeliness of its statutory returns, and access to an invaluable measure of its growth and health. The checklists provide a roadmap for working with an accountant to make accounting a year-round work. By so doing, the Small Business Owner is empowered with the financial information to guide important decisions about the business, and guard the business against avoidable risks and unpleasant surprises.