10 COMMON BOOKKEEPING MISTAKES MADE BY SMALL BUSINESSES – PART 1


In this article and my next one, I will explore 10 common bookkeeping mistakes that small businesses typically make. Here are 5 of them:

1.     NOT SEPARATING YOUR BUSINESS & PERSONAL FINANCES

Business owners often pay for expenses out of their personal funds and forget about them. Failure to account for these reimbursable expenses can result in lost money. Business and personal finances should always be kept separate. If you don’t have a business bank account, open one, then ensure that all business income and expenditure goes through that account. From time to time, business owners have to loan money to their business, especially at month-end in order to ensure that money is available for salaries. By transferring this money from your personal account into your business account, you enable your Bookkeeper to keep track of the profitability of your business. They will also be able to record how much you have loaned to your business in order that you know how much the business must repay you at a later stage. You will also be able to see how much salary the business can afford to pay you.

2.     VAT 

It’s a fact. SARS is conducting more and more VAT audits – on businesses of all sizes. So if you are not complying correctly with the complicated VAT regulations, you could find yourself being hit with heavy penalties and interest. Another drawback is that the incorrect handling of the VAT in your books may result in overstated / understated profits and over-payments to SARS.

3.      POOR MANAGEMENT OF YOUR PETTY CASH

Petty cash is a small amount of money that can be used to pay for small business expenses, such as stamps, tea, coffee and milk. Businesses often operate with petty cash, but have little knowledge of how to track it. Your business needs a system which allows you to track the movement of your petty cash. Click here for more information.

4.     NOT BACKING-UP YOUR BOOKKEEPING RECORDS

Just as it is important to regularly backup your email, Word and Excel files, it is important to backup your bookkeeping files (e.g. Pastel or QuickBooks company). Not doing so runs the risk that a computer problem will result in months (possibly years) of bookkeeping information being lost which is a major problem given that SARS requires you to keep your financial records for several years.

5.     NOT RECONCILING YOUR BANK ACCOUNT

Each month, your business’s books must be reconciled (double checked) with your business’s bank statement. Reconciling on a monthly basis ensures that errors and omissions are corrected quickly, before they become significant problems.

Be sure to keep an eye open for my next article in which I will explain another 5 common bookkeeping mistakes that small businesses typically make.

Ian Blackburn of Assured Bookkeeping (Pty) Ltd

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6 TIPS TO HELP CONTROL YOUR PETTY CASH


Petty Cash is a small amount of cash that a business has on hand to use for transactions where the amount involved makes payment by anything other than cash a pain!

Petty Cash has two uses: 

  • To provide change for customers paying cash
  • To pay for small purchases which require cash (e.g. tea and coffee supplies, parking)

Did you know that “Petty” comes from the French word “Petit”, meaning small? Below are six tips – all of which are easy to implement and maintain – that will help you manage your business’s Petty Cash well.

1. Set the maximum amount of Petty Cash to be held at any time as low as possible in case of loss or theft. You will need to balance the amount to be held against how often you will need to replenish it. When replenishing, ensure that you only take the Petty Cash back to the maximum amount and not past it.

2. The fewer people who have access to your Petty Cash, the better. If you, as the business owner have neither the time nor the inclination to manage Petty Cash, ideally just two give access to two people. By ensuring that the person who replenishes the Petty Cash is not the same person who records the transactions, you will reduce the likelihood of fraud.

3. Use of Petty Cash must be documented in the same way as other business income and expenditure. This means that all corresponding paperwork (e.g. cash slips) needs to be kept. Use a Petty Cash Schedule, such as the one below, to record all transactions and to keep your Bookkeeper happy!

4. Count your Petty Cash regularly. This will be helpful if any unexpected losses occur, because you’ll be able to narrow down when it went happened. Record any discrepancies as soon as they occur.

5. Replenish your Petty Cash (only back up to the maximum amount) when you think you will be unable to go through a working day without running out.

6. If you suspect that an employee may be stealing from your Petty Cash, restrict access to it and see what happens. If you have proof of a theft from Petty Cash, contact your attorney or call the police before you make any accusations.

Thanks for taking the time to read this article! Please feel free to post a comment.

Ian Blackburn of Assured Bookkeeping (Pty) Ltd

 

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5 FINANCIAL RATIOS TO HELP MANAGE YOUR BUSINESS



What are financial ratios?

Financial ratios are extremely useful indicators of your business’s financial performance and its financial situation. The information used to calculate financial ratios is typically contained within your management accounts, meaning that your Bookkeeper can present the results of the ratios to you each month. By understanding the information that financial ratios provide, you can apply their results to the management of your business and to decisions that you make.

Benefits of financial ratios

There are many financial ratios to choose from, meaning that there are ratios that will provide you with valuable information with which to manage your business, regardless of which market your business is in.

Financial ratios allow for comparisons:

    • between companies
    • between a company and its industry average
    • between industries

and they also allow you to analyse trends within your business by comparing their results over a period of time.

Examples

Below are just 5 of the many financial ratios that you could apply to your business.

1. Gross Profit Percentage

The Gross Profit Percentage shows how much of every Rand of income a business really has after its cost of sales is taken into consideration. The higher the percentage the better, given that the business’s gross profit has to cover all of the business’s overheads (expenses) before the monthly profit is arrived at.

2. Net Profit Percentage

The Net Profit Percentage shows how much of each Rand of income the company keeps after meeting its costs. The higher the percentage, the better. Importantly, this percentage is the greatest discount that a company can give without incurring a loss.

3. Current Ratio

The Current Ratio shows how many times the company could pay its present debts if it applied all of its current assets. A value of 2 is ideal.

4. Sales To Receivables Ratio

This ratio measures the time between sales and debt collection – in other words the business’s credit control. The higher the result of this ratio, the shorter the time between sales and debt collection. So, a high value indicates that clients tend to pay within a month of being invoiced, or that a business’s allocation and collection of credit is efficient. However a low value points to the business having to re-assess its credit policies.

5. Working Capital

Although referred to as a financial ratio, this ratio is not actually a ratio! The result is a value in Rands, showing the amount of money that a business has tied up in funding its day to day operations. A value that increases over time is sought. Working capital is used by potential Investors or lenders in order to gauge the ability of the business to get through difficult financial periods

Summary

Financial ratios will help to determine your business’s financial health over time and to compare its performance with companies in the same line of business. Trade Magazines, Chambers of Commerce and the Internet are good places to find this information for listed companies.

Thanks for taking the time to read this article! Please feel free to post a comment.

Ian Blackburn of Assured Bookkeeping (Pty) Ltd

 

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Control Your Bookkeeping Costs


Like other service providers, Bookkeepers are paid for their time and their expertise. Therefore you can help to control your bookkeeping costs by enabling your Bookkeeper to focus on applying their bookkeeping skills, rather than undertaking activities that don’t provide “added-value”.

When trying to reduce (or, ideally, eliminate) the activities that your Bookkeeper undertakes that don’t add any value, be aware of:

  • Eliminating unnecessary “Queries” (questions that your Bookkeeper has for you as a result of processing your source documentation)
  • The sorting of your source documentation (paperwork) prior to it being captured

Source documentation comprises the following types of paperwork, although not all types are relevant to every business.

 Bank statements
 Credit card statements
 Petty cash records
 Cash receipts book
 Slips (receipts) relating to all cash, debit & credit card payments
 Invoices for clients
 Invoices from suppliers
 Supplier statements
 Wages & Salaries info

I suggest that you give your source documentation to your Bookkeeper in a lever arch file, with each category of source documentation in its own A4 plastic filing wallet. This will reduce your Bookkeeper’s pre-processing time.


Whilst on the subject of source documents, be aware that SARS requires that all source documents be kept for seven years, so that the documents are available should they decide to audit your business.

When you hand over your source documentation to your Bookkeeper each month, ensure that you give them everything. It sounds obvious, but you’ll be surprised how many people don’t! Add explanatory notes relating to any items or transactions that are out of the ordinary, supply the documentation associated with any new debit orders that have been set up, and don’t forget to highlight any personal income/expenditure that has gone through your business.

By carrying out these simple steps, you should see a reduction in the number of “queries” that your Bookkeeper has. This, when added to shorter pre-processing time, should lead to a reduction in both the amount of time that your bookkeeping takes and the associated costs. Even more important, it should also result in your Management Accounts being generated quicker, which means that you’ll have earlier access to financial information with which to manage your business.

Thanks for taking the time to read this article! Please feel free to post a comment.
Ian Blackburn

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Employment Opportunity at Assured Bookkeeping (Pty) Ltd


 

Assured Bookkeeping has a position available for an experienced bookkeeper. It will be a pressurised role, but very satisfying and enjoyable. You’ll definitely be in a working environment where your hard work will be appreciated.

 Click here for more info.
 
 
 
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