This is quickly becoming my quote! One sentence to explain it all. From the foundation of bookkeeping in general, measuring and keeping count of all the finances in your company is vital. Not only do you have to keep track of your books, but it's so beneficial at the same time. As with any successful relationship, good communication is the key. Your bookkeeper will need to know from time to time what a certain transaction is for in order to classify it correctly. He or she will need all receipts, invoices and bills sent over. The cloud based software I use makes this so easy by the way. In Xero, you can scan and send all of these things to an email address attached to your Xero account where you can upload them right into the accounting software. Another reason I love Xero! Just snap a pic of your receipt and send it straight from your phone. Now people ask why do I need to keep all receipts? Well, it's not so much that your bookkeeper needs as much as the IRS requires it. Unfortunately, a bank or credit card statement isn't enough.
Having a bookkeeper handling the books also provides "internal control", a safe guard to money being spent. An example being, you have your bookkeeper handle your Accounts Payable and pay bills from your business account. He/she is keeping track of what is owed and when and that there are no duplicate bills being paid out. The bill is entered in Xero and I as your bookkeeper doesn't post it but rather saves it to be approved by you. It's always better to have more than one person overseeing the money being spent.
Once you know what's in your accounts at the end of the month "the measuring", you can start "the managing". At this point, you can be more in control and pro-active rather than reactive. This allows you to plan for the future of your business by saving to grow your profits by reinvesting. This is your livelihood not only for you but for the employees you have. I provide you with monthly statements that tell you where your money came from and where it was spent in detail. Some business owners don't know what all their exact expenses go. It could surprise you of how much A/R you had outstanding or how much your COGS (Cost of Goods Sold) expenses are. Having a better idea of these numbers is where the fine tuning begins. Maybe you could cut your COGS down which would bring in more profit! This is why you started your business after all. To be successful making a living while doing something you enjoy and are good at. Bookkeeping may not be your passion though and some people don't know where to start. If you are in this boat, feel free to contact me so we can start measuring and managing your finances.
What is the difference between a bookkeeper and an accountant? Why do I need both? These are great questions and are frequently asked! I came across this blog and she does a great job of answering all of the above in depth. Here's the link to it:
So what is a chart of accounts? It's the listing of all accounts used by a business to record and classify financial transactions. Think of it as all the individual folders in a filing cabinet. When you record and classify, you are picking what appropriate file your transactions go into. Setting this up is one of the very first things you do when bookkeeping. Now the great thing about having a bookkeeper is that we do this for you behind the scenes! This is more of a backstage pass for those who do their own bookkeeping. Just like a table of contents in a book, you start out by having the main chapter groups: Assets, Liabilities, Equity, Revenue and Costs/Expenses. Anything that fall under your Assets group will start with 1000 so it gives you enough numbers to group transactions as needed. You want to be detailed but not overkill when classifying nor do you want to be too vague. All liabilities will be in the 2000 number series. Equity in the 3000, Revenue in the 4000 and Cost/Expenses in the 5000 and 6000 number series. Now assets are anything that you own, liabilities are what you owe and equity is what the difference from the assets and the liabilities (basically what is left over). Now for some examples:
1100 Accounts Receivable
1200 Prepaid Expenses
2100 Accounts Payable
2200 Sales Tax Payable
3000 Owner's Contribution
3100 Owner's Draw
5000 Cost of Goods Sold
Google also has some good templates you can download for your specific business type. Save it so you can change and edit as needed. Over time, it's a good to go in and delete the ones you don't use just to keep things clean :) One reason I like Xero for my bookkeeping software is that uploading my chart of accounts is easy and I can add to it on-the-go as I am in the middle of classifying a transaction. I love when technology assists us so wonderfully. I hope this helps as you begin your chart of accounts!
Just thinking about bookkeeping features isn't that all super exciting for the average person. You think numbers, calculating, receipts, filing and many more adjectives along that line. It's not until you know the detail that goes into all behind the scene and how these features benefit us as business owners. Picture an umbrella for a minute. There's not too much to it from the outsider's view. But long ago, (approximately 4,000 years ago) someone put a lot of thought into this design that was eventually called an umbrella. It was first designed to protect people from the sun and was later water proofed to shield us from rain. So whether on a hot, sunny day or a wet, rainy day, the umbrella is very useful. The benefits make the features attractive. I didn't say as a kid, "I dream of being a bookkeeper when I grow up" but now learning all that goes into balancing the books is interesting. The benefits of keeping the books correctly allows owners of companies to know where they are and plan where they want to go as a business. You can only manage what you can measure! Bookkeeping is the feature that gives you the benefit of knowledge and insight to one of the most important aspects of your business, your finances!