Bookkeeping can be tedious, so it’s an excellent example of a task that can be profitably outsourced by many businesses.
That done, you need to remain in charge of two key aspects of your bookkeeping and accounting: the control of assets and the management information.
Control of Assets
You or someone you delegate to (but not your bookkeeper) should be checking and reviewing the bookkeeping. Large businesses refer to this as “segregation of authority”: the person who spends the money doesn’t also sign off the expense claim, and the person who pays the supplier doesn’t also sign the cheques or have online access to the bank account.
You can protect your business assets through a few simple steps:
- Recognise the importance of “separation of duties” and have someone oversee the work of your bookkeeper. If the bookkeeper does all the data entry, don’t also let them sign off the reconciliations. If your bookkeeper is a sole trader you need to do this yourself, or get one of your staff to do it with you. If your bookkeeper is not a sole trader, make sure that at least two people from their firm are involved in your accounts (one to do the work and one to review it).
- Code and approve invoices before they are entered, and then also code all payments before they’re made. You may decide to let your bookkeeper enter supplier invoices and sign cheques (or create ABA files) but you have to sign off the transactions. Review the supporting paperwork before you approve the payment so that you can make sure it’s all correct.
- Approve any new suppliers so that you retain control of who your business purchases from.
- Approve all credit notes issued to customers. Most businesses don’t need to raise many credits, so it shouldn’t take you long to review them. Use a combination of software controls and procedures to help control this.
- Review your balance sheet. Many small business owners think the balance sheet is a mystery, but it really shouldn’t be. It is just a list of things you own and things you owe. Alarm bells should ring if your bookkeeper cannot adequately explain every number in yours! Talk to your accountant or financial advisor and make sure you understand every asset and every liability.
Want more articles like this? Check out the financial management section.
What about your management information? Why do you need to retain control of producing it? You (not the ATO or your accountant) are the one who needs that information. If you don’t ask for it you probably won’t get it! Some bookkeepers’ focus mainly on preparing the BAS (which is important) but don’t pay as much attention as they could to preparing management information.
So what should you ask for, and how will it help you?
- Review your sales figure every month, and examine anything that appears to be unusual. Look for trends and anomalies (good as well as bad). Ask for plain English explanations.
- Review your gross profit (GP) figure, both in total and as a percentage. If the percentage dips ask for an explanation of why, and if it increases also ask why!
- Review your profit and loss statement (P&L), and compare it to your budget (you do have a budget don’t you?) and to trends over recent years or months. If the business is trending up or down it’s important that you understand why so that you can determine how to capitalise on positive changes or fix negative ones.
- Compare your results to industry averages (benchmarks).
Don’t be afraid to ask for expert advice. You’re paying for expert help, so make sure you’re getting what you pay for. In particular, spotting trends or anomalies can be hard (sometimes even for management accountants) so use all the tools available to you.
There are many great bookkeepers available to help you and your business. If you follow the tips above to keep them on their toes you’ll improve your chances of getting great service.
How many of these do you use? Are there any other tips you would like to share?