10 Dec
Growth through effective Bookkeeping
Bookkeeping Services that can help your Business Grow
No matter what type of industry your enterprise is in, there is a set of standard business responsibilities that you must adhere by at all costs. These could include but are not limited to Bookkeeping, Taxes, Accounting, Licenses, Health & Safety, Employment Law etc.
Whether it is a small or an established enterprise, entrepreneurs need to fulfil their financial, managerial, tax and other responsibilities to keep their business on the right side of HMRC.
In this article, we have worked with our in-house bookkeepers to find out about the vital bookkeeping services that you can utilize to improve your company’s finances and in return growth.
You can also outsource your bookkeeping services by speaking to an online accountant. If you do not have an accountant try looking for an accounting firm nearby or an accountant in London.
Related: Learn how outsourcing your bookkeeping responsibilities can benefit your business.
The value-added services which are key to your bookkeeping process to extract growth as explained below:
1. Setting up a Chart of Accounts
Chart of accounts is the framework that organizes your company’s expenses and revenues to quickly record them into the financial statements, with minimal effort. Accountants make use of these chart of accounts to track and record any transaction and enter them in the firm’s general ledger.
Setting up the chart of accounts is the first and essential step for employing an effective bookkeeping system in your company. There are no set rules on what statements to include in your chart. What to include depends upon the nature of your business, for instance, a service business would not require an inventory account to be added up in their COA.
While developing your firm’s chart of accounts, you need to consider your long term business plans and targets and take them into account. You might be a startup now and might have very few employees on board, but remember that you might expand with more employees.
Your chart of account is key to building your tracking reports, your visual graphs and your board presentations. Build your chart of accounts keeping in mind your industry, business type, long term goals and scalability. Do not just build up your chart of accounts based on the current scale of operations and your market reach.
One other trick to create an effective system is by introducing a numbering system for your chart of accounts. Assign a block of numbers to each of the categories of the accounts to build your chart. You may use a four-digit numbering system if you are utilizing a computerized accounting system.
Five general categories make up a company’s chart of accounts:
- Assets
- Liabilities
- Revenue
- Expenses
- Owner’s equity
2. Account Coding:
Coding your accounts is a systematic procedure of organizing expenses and income by assigning codes after analyzing the nature, elements and function of the transaction. The coding system is usually utilized by large enterprises such as manufacturing firms to track what is flowing in and out of their business.
Related: Find the perfect accounting tool for your manufacturing business.
In this article, we intend to enlighten you on how a typical coding system operates. For better tracking, the system will separate all of the costs incurred by the business and further categorize them based on their nature and function.
Classifying the expense by its nature implies that it is either direct or an indirect cost.
1.Direct cost: Any cost incurred in the production of a single or a batch of units. For instance, Direct labour cost, cost to purchase materials, commissions and more.
2.Indirect cost: Any cost that is not directly incurred in the production of single or batch of units, say indirect material, production supervisor salaries, insurance and more
Splitting the expense by its nature is not sufficient; one needs to differentiate between the functions of the business that are incurring the most cost and the least cost. This splitting up makes it much easier for business owners to identify the weak and robust performing areas of their business.
The next step is to set up a coding structure after consensus so that it is understandable for everyone in the company and fulfils the company requirements both in the short-run and long-run.
The coding structure can be subject to numerical, alphabetical or alphanumeric, depending upon the requirements of the business and the types of expenses incurred.
Once you have decided what coding system to use, you will now need to separate each of your expenses based on three factors, nature, element and function. For instance, if the manufacturing company is producing leather sofas, then the splitting of expenditures should be done keeping the following factors in mind:
- Nature= Direct cost
- Element= Material
- Function= Cost of sale
The code of the leather should somewhat be like this:
- D= direct cost
- Material=002
- Cost of sale=4
Leather code= D0024
These expenses can be further categorized but may become confusing, so we advise you to seek assistance from a business accountant or an accounting firm nearby. An accountant will help you manage your expenses categorically to make the bookkeeping process simpler and efficient.
Anyone who wants to pursue cost accounting as their major must know the core principles of the coding system to move forward and progress in this field.
3. Bank Reconciliations:
Hundreds and thousands of cash transactions take place in a business every month. There is a long list of payments, either made to you or paid by you through a bank account, which is stored in your finance department records over time. As these payments pass through a bank account, there is a separate record of your transactions, other than your company’s documents, that banks prepare every month.
Due to two separate records, there is a probability that the two statements might not match each other after inspection. The process of cross-checking for the cash account of a company with the information mentioned on the bank statement then begins called bank reconciliation.
Related: If you are trying to make your bookkeeping system more effective, then you should begin by opening a separate bank account. Learn how can you make your bookkeeping system more efficient and reliable.
Bank reconciliation is a systematic process of matching the accounting information under your financial system with the transactions recorded on the bank statements produced by the bank. The primary purpose of this process is to identify any resulting differences and to introduce appropriate amendments to internal financial records, which is called the reconciliation.
We advise you to complete a bank reconciliation for every bank account of your company regularly to ensure accuracy, correctness and reliability of your company’s cash account. Any negligence can mislead you on the status of your cash account and may even lead to payment problems when paying your suppliers. If you are unsure about how this process works speak to your bookkeeper so they can build it in the bookkeeping process.
You don’t require regular bank reconciliations if you don’t have a large volume of bank transactions to record every month. However, it’s advisable that you should do bank reconciliations every month at least. Start the process whenever the bank sends a statement with information about the starting cash balance, transactions for the month and the closing balance of that month.
Finding discrepancies and errors in financial statements is very time-consuming and tricky. You can save time and effort by speaking to a bookkeeper or an accountant.
4. Stock management:
Stock management, also known as inventory management or stock control, is the process of ordering, storing, tracking and supervising non-capitalized assets (inventory) and other stock items.
The entire process ensures regulation and tracking any inventory from the manufacturers to the warehouses, and warehouses to the wholesalers or retailers. Detailed records are kept for the flow of new or returned items whenever it enters or leaves the warehouse to the point of sale.
In short, stock management tracks every single item used to produce products or services and takes into account every matter related to the company’s inventory.
Stocks or inventory primarily have four different categories:
- Work in progress: These are the items that are under development stages.
- Raw materials: Raw materials are the items used in the production of goods or services.
- Consumables: You need items to carry out daily activities of the business; for instance, fuel and stationery are consumables.
- Finished goods: Finished goods are those goods that have successfully passed all of the production stages and are up for sale.
To fulfil your stock requirements effectively, you can rate each category according to the value it generates for the business. This rating helps mitigate the problems that may arise with finance management due to cash shortages by allocating the limited finances to the most value-generating items.
There are two ways through which small businesses can manage stock or inventory. The first method is periodic stock management, and the other one is perpetual stock management.
Periodic stock management:
Periodic stock management is a system of physically tracking, storing, monitoring and controlling inventory after specific intervals of time. With a small list of inventory to manage and limited funds available, periodic stock management is the best option for small businesses to avail as compared to electronic tracking systems.
The time-consuming nature of periodic stock management makes it unsuitable for large businesses to employ.
Perpetual stock management:
Perpetual stock management is a system of tracking and recording inventory electronically after production of a single or batch of unit items. This system incorporates inventory tracking practices consistently and is extremely suitable for large businesses. Though these systems are costly to employ in the company, the electronic system ensures an up-to-date and reliable depiction of the stock levels of the company.
Related: Stock management is a big concern for manufacturing businesses. Read how manufacturing businesses can employ the right accounting tool to ensure quality bookkeeping.
5. Fixed asset register management:
Companies can only ensure informed decision making and quality services if they have the habit of keeping track of everything they own on a regular basis.
Not only do these companies prevent losing their assets over theft or fraud, but also ensure accurate reporting on the number of assets and the value each asset generates.
Before you learn about what fixed asset register management is about, we will begin by elaborating on fixed assets.
A fixed asset is what an enterprise owns and uses to generate earnings, repay debts owed by the company, attract potential customers and accumulate business wealth. Land, property, machinery and equipment are all examples of fixed assets.
Keeping track of a company’s asset account is the key to effective bookkeeping, but may require a lot of attention and time. Employ effective bookkeeping practices by hiring or speaking to an online accountant or a business accountant.
Now that you know what a fixed asset is, we shall now discuss fixed asset register management. The fixed asset register management is a systematic process of listing down all the assets that a company owns. It takes into account the expenses incurred by purchasing and maintaining an asset, and the depreciation that results after using it over time.
The fixed asset register comprises of all the critical details about a particular asset, such as its function, the value it provides, its purchasing price, and purchasing date. It also takes into account the life of the asset and its depreciated value after a specific period.
These fixed asset registers are extremely useful in determining the book value of assets and the resulting depreciation on the asset over time. Not only do these help keep a thorough track over the company’s assets, but also helps in organizing them according to their use by assigning them a specific code or number.
Related: The reliability of your company’s finance infrastructure depends heavily on how well you manage your bookkeeping system. Find out how poor bookkeeping can impact your business’s performance.
Clear House Accountants are specialist Hybrid Accountants in London, what this means is that we have trained an in-house team of accountants and bookkeepers to be able to provide value-added services for your business at all levels. Speak to us to learn more.