So it’ll soon be that time of year when the annual ‘Spring clean’ happens where we try and rid our homes of that closed up winter feel, ready for the warmer months, if people still do that anymore!?
If you do or don’t spring clean your home this time around, one thing that we would recommend this year is to spring clean your bookkeeping. We have found that this is one area that clients can let become a bit stale as it may not necessarily be the most exciting thing to do. It can be worthwhile though to take some time to review how you are doing things to make sure that it’s all clean and tidy and running as smoothly as possible. Below we’ll go though a few areas that we see can get left behind, especially as bookkeeping is turning into a more and more automated environment.
Firstly, the dreaded bank reconciliation. Those words might send a shiver down one’s spine, but as mentioned in our previous blog , just because you might have moved to a data fed accounting solution like Xero or MYOB, it’s still necessary to run your bank reconciliation to ensure that it’s correct. Over time these programs have become more reliable in the data they receive from banks, and they’re also better at identifying duplicated transactions, but that’s not to say they’re 100% accurate. Running the bank rec is still necessary to identify any issues and as most of our clients use Xero we’ll focus on what we see happen in there. A few other errors we see on top of incorrect data being received that can throw that pesky bank rec out are transactions between bank accounts not being matched off correctly, which essentially duplicates those transactions in one account or the other. To ensure this doesn’t happen, we recommend always coding all the transactions in one bank account first and then moving onto the others. This way if you’ve coded them all correctly in the first place, the transactions should match themselves and all you’ll need to do is click the green tick to approve the entry. If you follow this process and there’s a transaction showing from an account you’ve already coded all the transactions for that’s not appearing as a matched transaction, then pause and investigate why, as it could mean there’s been a coding error made previously. Another common thing we see that puts a bank rec out of balance is when applying payments or receipts to invoices that have been entered and not matching these up correctly to the bank transaction. When this happens the transaction might then be coded directly to the income or expense account which can duplicate a transaction in the bank, with one always showing as an unpresented payment or receipt.
The next item that might need dusting off is a review of your aged debtors and creditors. This is pretty important to do regularly, not only so you know what is outstanding or owing to you, but also because any errors or amounts that should be written off here have a direct impact on your profit, tax and potentially GST, be they over or under stated. The lifeblood of any business is cash flow, so you want to make sure you’re not paying more than you should, when you should, but also that you don’t have any unexpected liabilities arise that you haven’t budgeted for (in the case of an underpayment).
The final items that are always good to occasionally review (if you don’t play close attention already) are your Profit and Loss (P & L) and Balance Sheet’s. Now I’m not talking about checking your bottom line of your P & L, but looking a bit closer at all the figures on your P & L and Balance Sheet and ensuring that it’s tidy and there aren’t any duplicated accounts that have been used, or figures appearing where they shouldn’t be. While you might leave this to your accountant to check, if this is only done when they are preparing your financial statements then you could potentially save some fees if this is checked before. If you’re able to correct any obvious errors corrected prior to your accountant starting work. It also means that the figures from your accounting system have a bit more integrity if you need to use current year figures for finance and your accountant hasn’t been through them first. Banks don’t really like receiving figures for the same period that are drastically different to the finished product, so if more reliance can be placed on your management figures, it may mean you receive a slightly lower cost of borrowing, or just make the lending process smoother.
Whilst not an exhaustive list, these are a few points that don’t take long to review occasionally through the year, probably over a coffee, but doing so can save significant amounts of time if any errors are picked up sooner rather than later. As the saying goes, prevention is better than cure!
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