If your books are a mess and you swear you’ll do better in 2024, it’s important to understand what exactly makes your books (accounting records) “good”.
I’ve developed a framework of three fundamentals of good bookkeeping, and each fundamental builds on the one prior, so you need ALL THREE in order to have good books.
Timeliness: The first pillar of good bookkeeping is maintaining up-to-date records. Are all your financial transactions accurately recorded in your books? Depending on the frequency of your financial activities, you should aim to update your books at least once a month. If you’re in a situation where cash is type, you will need to review at least weekly.
Accuracy: Once you've ensured that all transactions are in your records, the next step is to verify their accuracy. Are they classified correctly in their respective categories? In this phase, you scrutinize the accounts to ensure that each transaction is allocated to the correct account. Additionally, PLEASE reconcile your bank accounts to make sure that every transaction reported by your bank aligns with what's in your books.
Utility: Simply having data in your books isn't enough; it must also be useful. Do your books offer a structured framework for making informed strategic decisions? To enhance the utility of your financial records, consider two primary tactics:
Implement a well-structured chart of accounts, which simplifies book review and key performance indicator (KPI) analysis.
Employ project tracking, especially if your income is tied to distinct projects. This can reveal the true profitability of each project, helping you make more informed business decisions. Often, tracking projects can lead to surprising discoveries about which projects are genuinely profitable.
All these elements work together to establish a foundation of good bookkeeping, setting the stage for higher-level financial services provided by accountants, such as forecasting and tax strategy. Effective bookkeeping is the cornerstone of sound financial management, making it a crucial starting point for any business.
Comments