Bookkeeping can be an overwhelming job if you let it pile up. The longer you wait, the more work builds, and the harder it is to complete it. Not only that but if your bookkeeping isn’t timely, you won’t have the information you need to make wise business decisions.
So, what should you do? Make yourself a checklist and keep yourself on track. To get you started, here are 7 bookkeeping tasks you should perform every month to keep your small business healthy:
Check your categories
Recording transactions is a big part of bookkeeping. And, while bank feeds and automation have taken away some of the manual data entry, it’s your job to make sure everything ends up in the right place.
Once a month, review your income and expenses to make sure everything looks good. You’ll be able to catch transactions that got classified incorrectly and put into an account that just doesn’t make sense.
Throughout the month, you may have also used temporary accounts like “uncategorized expense” when you weren’t quite sure. This end-of-month review is the perfect time to categorize these in the right place so they don’t pile up.
Reconciliation is one of the most important and most overlooked bookkeeping tasks for many small businesses. Essentially, it’s like balancing your checkbook on a bigger scale. You need to compare your bank and credit card accounts in your accounting system against an outside source (usually a bank statement) to verify everything is correct.
If the opening and closing balance of the account matches perfectly between your accounting software and your bank statement, you’re done! If not, you need to track down the transactions that are present in one but not the other. These could be transactions you missed and didn’t enter, items accidentally entered twice, or a timing difference.
If you wrote a check that hasn’t cleared the bank yet, it may be in your books and not the bank statement. If you were charged a bank fee, it may be on the statement but not the books. It’s your job to correct errors and create missing entries so the books reconcile and everything is accounted for.
Review financial statements
The end of the month is the perfect time to review your income statement and balance sheet. Once all transactions are in for the month and reconciled, you can generate these reports quickly from your accounting software.
Check to see how your income statement compares to your budget for the year or against last year’s income statement at this time. You can check for errors but you’re also looking to see if your business is on track to meet your goals. On the balance sheet, make sure balances are correct by matching loans and assets (like business-owned vehicles) with statements from the lender.
Review cash flow projections
Cash flow is one of your financial statements, but it deserves special mention here. Cash flow is a crucial measurement for small businesses, who need that cash to stay afloat. You should have a monthly projection showing what you expect to bring in and what you expect to spend in cash each month. Review it now to make sure it’s on track and to prepare for any expected surplus or shortfall in the next 4 weeks.
If you have accounts receivable that aren’t paid quickly, run an accounts receivable aging report. You can review this report monthly to see how many outstanding accounts are 30, 60, or 90 days past due and address them appropriately.
Invoicing best practice includes not only sending invoices quickly after purchase but also sending regular reminders about outstanding invoices as they age.
Whether you cut your own paychecks or work with an external payroll provider, make sure to review it on a monthly basis. You need to ensure that the balances in your payroll related accounts match the balances on the payroll reports. This includes amounts paid to employees as well as amounts withheld for tax purposes. It’s crucial to get payroll right since it impacts both you and your employees and the IRS is very serious about payroll taxes.
Calculate and file sales tax
If you run a service business, you may not have to worry about this step (some services in some states do collect sales tax). Once a month, verify the sales tax you’ve collected and make sure it’s correct. Hopefully, you have external help or an automated sales tax process, because it can get complex. Verify that it’s not only correct but filed and remitted on time to avoid any interest or penalties.
Stay on top of these seven monthly bookkeeping tasks and you’ll help your business stay in great shape. Want to free your time and boost your profitability? Get help from a professional and review these items with them to help you make the critical business decisions only you can make.