Here's a list of activities you should carry-out daily and monthly to keep your books updated.
1. Keep every receipts for payments made and every invoice for sales. Documentation is important in accounting. If we can’t see a source document that expense may as well be non-existent. If payments are made into the bank or cheques written, be sure to include a memo of what the money is used for. Most software allow you go paperless today. This means you can take a picture or scan your documents, upload and attach to the relevant transactions as recorded in your books. If you’re not a fan of going paperless, buy a file.
2. Prepare to keep a record of everything on a daily basis. Every purchase, payment, income etc. Whether or not money left your account or came into it. If you received service from another person and you’re expected to pay, record that. If you rendered service to someone and they’re expected to pay at a future date, record it when the service was rendered. Dates are important in accounting. Keep a record of the transaction date and the amount involved. If payment comes at a later time, record the date that payment was received.
3. Most of what we do in accounting is on accrual basis as opposed to cash basis. What this means is that we keep record of income and payments as they occur, whether or not cash was exchanged. This basis is necessary to know what’s yours and what isn’t. For instance you could have =N=100,000 in your bank, and you could be owing someone =N=70,000. Technically the cash that's really yours is only =N=30,000. That's why we accrue. By accruing we make provision for future payments so at the end of the period we know what money is ours to spend and what isn't.
4. Separate what the business owes you. Many of you may need to deep your hands into your personal accounts to offset business cost. Consider this as the business taking a loan from you. Remember I said earlier never to mix personal and business money. So, loan money to your business with an expectation of being paid back. The same way you would keep a record of those owing the company is the same you should keep a record of who the company is owing. Including yourself. It works the other way around too. If you take money from the company for personal activity, then put down yourself as a debtor to the company. You’re owing money that you need to pay back. Never mix these things up. Try to avoid taking business money as much as possible. It had adverse effect if you ever consider getting external funding. In accounting we maintain a Directors Account for transactions of this nature.
5. Place yourself on a salary. I’ve found this to be the easiest way to keep track of spending and avoid the temptation to just pull out money in bits until it’s all gone. Be mindful of how much you take though. Your salary is a fixed cost and will be paid whether or not the business makes a profit. Be frugal. If you've nursed the idea that being self-employed gives you access to so much money, I'm sorry but you need to kill it now. So many directors earn salaries and much of the money you see them spend probably come from profit sharing at the end of the year.
6. Bank all your sales on a daily basis. Larger companies do this and it makes money management easier. Without removing a dime, make sure every cash received per day get to the bank latest by the following day. This is important. For many people, keeping records will be hard and your bank statement is your last line of defence. It’s also a control account. Keep a record of how much was sold during the day, and make sure to take a Teller from the bank and file this. Likewise when you have to make expenses withdraw the money from the bank. You can keep cash (petty cash) for smaller expenses, but remember to keep detailed records of how the money was spent, even what’s spent on food. You can also tell your customers to make all payments into your bank account. This will reduce the risk of employee fraud and ease Accounting should you need to outsource this role. The idea is to go as cashless as you can manage.
7. At month’s end, request a monthly statement from the bank and reconcile every inflow and outflow against your records. I’ve seen cases where bank Tellers collude with staff to defraud the company. A monthly reconciliation helps you spot inconsistencies and fix them early. Take note of bank charges on your account. Sometimes you'll be charged twice. Was the excess charge reversed? If you're running an overdraft account, is the bank applying the correct percentage? If you took a loan and repaying, is the interest charged to your account the same as what's on your amortization schedule? If you have a Fixed Deposit with the bank, is your interest incoming at the right rate? Can you see it in your account? Are there charges you don't understand? Ask the bank. These are things you need to take note of in your bank statements beyond the regular payments and withdrawals you make.