When it comes to bookkeeping, your worst enemies are loose ends, missing transactions, and numbers that don’t add up. Bookkeeping is a thorough process that takes time and attention to detail. While you may use a bookkeeping software that’s easier than keeping track of it by hand, you can’t skip any steps. There are no shortcuts because every detail matters.
In addition to keeping track of accounts payable and receivable, cash flow, inventory, payroll and purchases, here are three bookkeeping basics you shouldn’t neglect:
Invoicing
If you’re a service-based business, invoicing is the primary means by which your business will receive money for services rendered. Invoicing should take place immediately after a project is completed. We do not recommend procrastination because invoicing helps you get money into your account faster. There is a variety of invoicing software that simplifies this process.
The more clear and detailed you are on your invoice, the less likely a client will delay payment because they’re confused about something. In addition, it is wise to get as much information about your client as possible, including the name of the person in charge of paying the invoice and their business address so you can keep it for future invoicing. This will ensure that the invoice reaches the right person and help avoid unnecessary delay of payment. Your invoice should include an invoice number and an itemized list of each service rendered, the charge for each service, and a description of each service. Finally, list the total amount due along with information about payment terms and methods.
You should inform the client of your expectations about invoicing and what could happen if payment is late before you begin work for them. In most cases of an overdue invoice, there’s no malicious intent on the part of a client — they simply forgot about the payment or never received the invoice. Once you send the invoice, try to verify that they received it either the same day (if you’re sending via email) or the next day. You should also make sure to send them a reminder a week in advance and the day before that the due date is approaching.
Last, but not least, be sure to keep records of every invoice in case your client comes back to you in the future to dispute a charge.
Billing
The difference between invoicing and billing is a matter of giving and receiving. The two terms are used to distinguish between money coming in (invoicing) and money going out (billing). An invoice is a bill that you send to your client. But when a vendor invoices you for a service, you are getting a bill from them. Your billing account, or your accounts payable, keeps track of the bills you owe to outside vendors.
Until they are paid, your bills are outstanding debt on your account. Therefore, it is vital to keep track of each one and know when your money is going out of your account to pay the bill. You can try to negotiate a payment date that works best for you, but at the end of the day, the vendor you owe money to controls when they want to be paid. You can organize everything through bookkeeping software or use a calendar or worksheet that tells you each payment you owe and when you’ll pay it.
Reporting
Financial reports help you as a business owner gauge the overall health of your business. We recommend reports that allow you to see the big picture. The three types of reports that will best help you to do that are an income statement, a balance sheet report, and a budget vs. actual report.
An income statement, sometimes also called a profit and loss statement, gives you the broadest view of your business’s financial state. The first thing it tells you is the most important thing: whether your business is operating at a profit or loss. The income statement measures expenses and revenues over a period of time. This report reveals if you’re on the right track or if some adjustments need to be made. Income statements will also inform what you need to put on your tax returns.
A balance sheet gives you perspective on your assets and liabilities and any equity you might have at any given time. It tells you what your business owns and what it owes. If your business needs a loan, your balance sheet will be one of the first things your potential fiancer wants to see. As a general rule of thumb, creditors want to see a high amount of assets and equity and a low amount of debt on your balance sheet. Knowing your balance sheet could make the difference in helping your business grow to the next level.
A budget vs. actual report will help you make informed decisions regarding expenses. You may have a budget in mind, but it doesn’t match your actual spending. This report compares your income statement to your monthly budgeted amounts. This is one of the most useful tools you can use as you plan the future direction of your business. A budget vs. actual report will not only identify errors in your business, but also help explain why the errors happened so you can correct the mistake instead of repeating it.
Fricke & Associates has small business bookkeeping professionals in Atlanta, GA. We help make the processes of invoicing, billing, and reporting seamless, freeing you up to focus on the day-to-day operations of your business. By choosing Fricke & Associates, you’ll always know where your money is and where it’s going. We offer small business accounting services and bookkeeping services in Peachtree Corners GA and Marietta GA.