For many small business owners, bookkeeping and document management can be grueling tasks. Often, piles of paper collect on a small business owner’s desk with no plan to file or scan and store these items.
The problem is that this can carry on for long periods of time before problems arise and things get fixed. Inevitably, something will happen - maybe a tax audit, maybe you uncover fraud and cleaning up the mess will be a drain on you.
Small business owners should realize that with the right technology and a savvy bookkeeper you can avoid running into this situation.
The Importance of Good Bookkeeping
Let's start with bad bookkeeping… Bad bookkeeping can be worse than no bookkeeping at all. One of the challenges facing the bookkeeping industry is a lack of standards to manage bookkeeper quality. When I was employed with a large big four firm, we often depended on bookkeepers to assist with client work. I was amazed at the varied quality in bookkeeping work. This is where part of the inspiration for Enkel came from.
Ultimately, bookkeeping serves two broad functions which are to provide useful information in a timely manner and to assist with regulatory compliance.
Though a bookkeeper will in most cases not be filing your tax returns (leave that to the experts!), being close to the details they will be best equipped to ensure that all business expenses are captured.
The problem, however, is that a bookkeeper that is not equipped to look for the right details can miss important deductions or may not appropriately alert you or your accountant of opportunities that they find when grinding through the details.
Attentive bookkeeping is essential to the success of any small business. It can limit much of the pain of an audit. If your books are up to date and accurate, you should be able to prove to tax authorities quite easily that your financial records are appropriately stated for income tax purposes. It is also worth noting that appropriate record keeping is a legal requirement.
Furthermore, accurate bookkeeping provides you with useful information. Timely financial information results in improved decision-making and better financial analysis and management. Access to the right information at the right time makes reporting to investors and business planning a lot easier. Simply put, attentive bookkeeping results in greater peace of mind and less stress.
Being Audit Ready
When clients learn that they are being audited, instinctively they start to panic. Audits can be painful to small business owners and can consume many hours of otherwise productive time that can be used to grow the business.
Audits are a necessary evil in the tax system and are not going away anytime soon. As a result, it is best to have a workflow in your business that keeps you audit-ready at all times. Also, you should focus on making this process completely paperless.
With all of your documents in the cloud, retrieving documents has never been easier. No more time will be wasted on endless document searches.
These improvements in efficiency and productivity will positively impact your day to day activities and if you are audited, they can be easily accessed. It is also worth noting that your virtual documents will be safeguarded from disaster; you can now backup your critical files without being worried about physical storage-related issues.
This can prevent a situation whereby you are unable to provide an auditor with the documentation for transactions recorded in your accounting records.
Working with great tools like Xero and Receipt Bank allows you to incorporate good document management in your day-to-day processes.
Receipt Bank securely stores your receipts in the cloud for at least seven years which complies with the document retention requirements of many tax authorities around the world. Check here for more information.
Xero has an inbox feature which is very handy. Each account has a designated inbox so you or your suppliers can email invoices right into Xero where your bookkeeper can retrieve them and attach them directly to transactions making them easy to find if ever required.
So what should you do next?
A good starting point is to look for the right bookkeeper. Make sure you ask your bookkeeper about how they will help you store your documents more efficiently. Also, get a good understanding of their experience and internal quality control procedures.
Then, the next step is to buy a good scanner. Realistically, you will continue to receive some paper invoices for the foreseeable future. Commit to yourself that you will scan the document as it arrives. It is key to have a good scanner for this, otherwise you will waste a lot of time struggling with your scanner and ultimately you just will not get it done.
I recently purchased a ScanSnap scanner. These are expensive little gadgets but they are great. The ScanSnap will make the process of scanning much less painful so it is definitely worth the cost. Finally, it is time to get one of your employees or your bookkeeper to start scanning that big pile on your desk.
Feeling overwhelmed with the whole bookkeeping process?
There’s a solution for that! We at Enkel provide bookkeeping services for small to mid-sized businesses in Vancouver, Toronto, Calgary, and Edmonton who are looking to streamline their accounting processes and strategically utilize their resources. Contact us to learn more about how we can help you and your business thrive.