7 Steps Process To Create A Good Bookkeeping System

Thursday, 19 Nov 2020

Starting a small business and making the first proverbial sales is what every budding entrepreneur aspires to achieve. However, very few give a thought to keeping records of these business transactions in the initial stages.

Bookkeeping is usually perceived as a time-consuming and labour-intensive chore which needs you to be a math wizard. It might have been true if we had still been using traditional physical ledgers and books.

With technological advancements, everything is moving to the cloud, and so is accounting. Thus, if you have set up a new business in Melbourne or are planning to start one, then you must lay emphasis on creating a good bookkeeping system.

You can do so by hiring a professional bookkeeper Melbourne. In case you wish to manage things yourself for the first year, then make sure you do the needful by instating a systematic bookkeeping system. Here are the seven steps which can make that happen with ease.

1. Determine the Accounting System for Your Business

The first step is to decide how the financial transactions will be recorded. It is better to leverage a customised accounting software rather than depending on the age-old journal entries.

The computerised method reduces the time spent on bookkeeping and minimises the risk of human errors. Also, the records are more organised and easily accessible. The bookkeeper usually decides whether the Melbourne-based business needs a single-entry or double-entry bookkeeping system.

The single-entry system is ideal for an exceedingly small and basic venture and does not allow you to stay on top of assets and liabilities. On the other hand, a double-entry system creates two entries for every transaction. The transaction is marked as a debit in one account and credit in another.

2. Prepare A Chart of Accounts

As a business owner in Melbourne, you need to choose between cash and accrual accounting. An owner/operator or a sole trader must opt for cash accounting. You can switch to accrual accounting in the future when you decide to expand the business.

It becomes almost necessary to switch if the business starts generating more than $5million annually. With cash accounting, the transactions get recorded only when the cash is exchanged between the two parties.

However, in an accrual system, the entry is recorded even if the cash is paid later. If you plan to offer credit to your customers, then you must opt for the accrual accounting system.

So, the expenses get recorded when they are incurred instead of when they are paid. Also, it is more feasible for large businesses in Melbourne as it allows better tracking of accounts receivable and payable.

3. Open A Separate Business Bank Account

All bookkeepers stress on having a separate business bank account so that it does not interfere with the personal funds of the entrepreneurs. It ensures that you do not end up using business funds for personal use and vice-versa.

It is also highly beneficial in tracking the business expenses at the time of filing tax returns in Melbourne. With separate accounts, there is no confusion, and you can be sure about the business-related expenses and income.

It aids in sending all the transaction data directly to the accounting software and leveraging effective record-keeping. It keeps things streamlined and organised and helps in preparing accurate financial reports. 

4. System for Invoicing and Tracking of Bills

Getting delayed payments from customers in Melbourne can lead to a cash deficit in the organisation. Thus, you need a robust invoicing system which generates invoices immediately and gets the payments on time.

Usually, the bookkeeper is responsible for following up with the clients who are delaying the payments. They communicate the terms of the deal to them and include clauses like penalties for late payment which help in expediting the flow of incomings.

You can use the accounting software which automates the invoicing process. Also, the software allows you to scan the paper bills and keep copies of them in the system rather than collecting them manually and arranging them chronologically.

It reduces the chances of losing bills or forgetting to enter them in the books. It also assists in categorising transactions without any errors later. 

5. Make Bank Reconciliation A Regular Feature

Reconciling bank accounts is a much-needed bookkeeping responsibility which helps in determining discrepancies in the books. It is used by bookkeepers to match the balance sheet figures with the bank statement to ensure that every transaction has been recorded correctly.

It is highly beneficial in identifying frauds committed by employees. For the reconciliation process, you must add the outstanding amount to the bank statement, such as those cheques which have not been cashed.

Also, you must make changes to the books to adjust the service charges levied by the bank or interest paid by it so that the total matches. It should be done every month so that you do not have to look for transactions that were made long ago to determine an error.

6. Prepare Your Reporting System

Financial reports are highly valuable in assessing the health of the organisation and offer an insight into the capital utilisation and spending. These reports are not only needed by the entrepreneur but also by the stakeholders and partners.

They are also useful for getting funding from money lenders and banks in Melbourne. The accounting software generates a wide range of reports. You need to identify which ones are needed by your business.

The basic ones that all ventures need are balance sheets, profit and loss statements, and cash-flow statements. Your bookkeeper can help in organising these reports and utilising them for making informed business decisions.

7. Upgrading and Analysing the Bookkeeping System

Improving existing systems is the need of every business, and bookkeeping should not be neglected either. The entrepreneur must assess the efficiency of every system and make advancements as and when required.

As your business expands, you can outsource the work to a professional bookkeeping company in Melbourne or have an in-house team of experienced bookkeepers and accountants. Invest in the best solutions in the industry to cut down on the extra hours spent on the tedious work and manage your finances successfully.

Endnote

Bookkeeping is not a child’s play. It requires a lot of factual data collection and assessment. If you are setting up a bookkeeping system in your organisation, then make sure you follow the steps mentioned above to do things the right way. It will create a solid foundation for your organisation in Melbourne and help you reap the rewards.

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