Do you outsource your bookkeeper? Or maybe you have staff to undertake your bookkeeping. Either way, you should have a process to monitor the book keeping work being undertaken for your business.
If you hire someone to do your bookkeeping, there are a number of items that you as the business owner should do periodically. Many small businesses have suffered serious losses when the owner lost track of the numbers and the trusted bookkeeper “borrowed money” and left for an extended cruise.
The following checklist will keep you in touch with your business, and perhaps even prevent you from serious losses.
1. Compare actual results to budget.
Each and every month you need to compare your income and expenses to your budget. This review is perhaps one of the most important tools for a small business owner. It’s a great way to learn what’s working and what’s not working with your business. The goal is not to have an accurate budget… but for you to have a thorough knowledge of what is happening and to know if anything unexpected is happening so that you can adjust your actions in a timely manner.
2. Scan the cheque register.
Periodically (say every 3-4 months) you should take a look at the cheque register just to make sure all the payees are familiar to you. Multiple cheques written around the same time to the same vendor could be an indication that funds are being diverted. (You also might want to reduce the time spent writing and posting multiple cheques.)
3. Review the bank reconciliation.
This should be done on a monthly basis (or if you skip a month take a look at all the reconciliations since your last review.) This step is important, particularly if you have one person doing all the bookkeeping: writing cheque, posting entries, and preparing financials. Look at any adjustments to the bank accounts, and stale items.
4. Review statements from vendors.
Every now and then (say 3-4 times per year) take the time to open the mail and look at statements from vendors (many vendors have stopped sending statements, but they will send late notices). Here you want to make sure that your business is in good standing with vendors – long overdue invoices might be an indication that a check you thought was going to a vendor actually went in someone else’s pocket, or that an invoice has been overlooked.
5. Review Payroll register and handout the paychecks.
Now of course this isn’t an issue for a business with only 1-2 employees. But “padding the payroll” is a common problem in some industries – such as construction or cleaning services where it is common for the crew to go straight to the jobsite and perhaps not come into regular contact with the owner.
6. Review your Accounts Receivable and aging.
This needs to be done on a regular basis. Of course you need to know if you have any slow paying customers and a periodic review would also disclose any scheme of misapplying customer payments.
7. Take a physical inventory.
Many small businesses have very poor inventory records, so if you have a large amount of inventory or a high volume business, you probably will want to work with your accountant and get some type of perpetual inventory system set up. Again, there are some excellent software packages available for the small business that will make this process relatively painless. Once you have a system in place, you should take a physical inventory at least once a year and compare the actual goods on hand to the inventory records.
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