It's that time of year again and if you're facing the daunting task of rummaging through dusty shoe boxes of receipts and trying to remember what goods and services you bought, then we need to have a little talk.
The task of closing the previous financial year can be stressful and time-consuming. To top it all, any mistakes made in wrapping up the financial year come at a cost; whether as taxes, penalties or even a tarnished reputation.
If you don't want to be in the same position this time next year (doing last-minute preparations), you should start March 2013 off with a good piece of software. The truth is that very few entrepreneurs are natural administrators. We're creative by nature and I understand how easy it is to get so absorbed in innovative ideas that day-to-day financial management is neglected until the last minute. I'm not saying you need financial savvy to be a successful entrepreneur, but you must teach yourself good habits and you really should equip yourself with tools that do most of the work for you, says Steven Cohen, MD of Sage Pastel.
I'm not saying it has to be Sage Pastel. I don't mind what software you use, as long as you start managing your business from a position of financial strength. At its most basic, I'm talking about a package that automates the collection and allocation of information. Choose a program that guides you through the process, spend one day a month doing what you've got to do, and then your year-end can be as simple as pushing a button. The proviso is that your basic monthly information is recorded correctly and kept up to date.
So, whether you have a software package or not, here are some top tips:
Work to a system: It's really important to work to a system and do one job at a time, finishing it completely before moving on to the next. This eliminates a lot of confusion and stress.
Back up everything: This is a lot easier if you are using a software package and online accounting is backed up automatically. Either way, you have to keep a record of all transactions before you make any adjustments, because if, for any reason, your year-end procedures aren't completed correctly, you can start again. If you're backing up to CD or external hard drive, it is advisable to keep that back up off site - the risk of fire, theft or even human error could result in the loss of that valuable information. Online backup facilities are also now available and Pastel Iron is a cost-effective online data backup service for SMEs (www.pastelirontree.co.za).
Sound reporting: We also recommend that our clients print out their key reports before and after running their year-end to ensure that the process has been successful. I think the most important reports to consider are the trial balance, balance sheet, income statement, detailed ledger and all age analysis reports. Having these records is also useful as supporting evidence for the auditor; in fact, it is always worth asking your accountant or auditor for a comprehensive list of requirements.
Stock take: It is also critical to do a stock take to ensure that the theoretical count (stock count on the system) is the same as the physical count (the manual process of counting the stock items on hand). Should there be differences, you need to make the necessary adjustments to reflect the quantities as you capture them.
Finally, work through all account balances to ensure they are correct - you can also write off bad debts as you go. This is where having a system is so important; work alphabetically or from smallest to largest account to ensure that none are missed or duplicated.
Of course, having the right accounting software goes a long way in making these jobs considerably easier; take time to choose a program that has the right amount of technology for your needs. If you're a fledgling business, you don't want to end up with a program that is too powerful because it will force you into processes that are unnecessarily time-consuming and then you'll end up collecting receipts in shoe boxes again. If you're a medium-sized business, be careful not to end up with technology that requires technical or analytical skills you don't have. You simply want to be able to automate tasks like invoicing, payments and bank recons, and you want to be able to close off every month. The time will come for applications that help with customer relationship management (CRM), business Intelligence (BI) and enterprise resource planning (ERP). I wouldn't be doing my job right if I didn't advise you to seriously consider an accounting solution in the cloud - this is the very near future.
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