Everyone has habits. Some of us bite our nails, others drink too much coffee. But not all habits are bad, and getting into a routine of good accounting practices can make it easier to manage your company finances. Here’s four good accounting habits that can benefit every freelancer and small business owner.
Send accurate invoices
Mistakes on an invoice can lead to confusion over how much is owed and when payments are due, as well as problems with your annual tax returns. It’s therefore essential that any invoice you send contains the correct information.
Using invoicing software with automatic invoice templates can help make sure that you fill in all of the necessary fields (an issue date, a unique invoice number, etc.), but it’s still worth getting into the habit of double-checking your customer’s details, the product descriptions, the due date, and prices. Spending an extra 30 seconds on looking over your invoice can help you spot any errors, therefore preventing issues further down the line.
If you need to send an invoice but aren’t yet 100% sure of the final details, send a proforma invoice instead. A proforma invoice looks much like a standard invoice, but isn’t a finalised, legal document. When the details of the sale are confirmed, you can make any necessary adjustments and convert the proforma invoice to a finalised one.
Record expenses as you go
It can be tempting to put off certain tasks – especially those which aren’t the most exciting – so many freelancers and small business owners wait until the end of the month to record their business expenses in bulk. However, this isn’t the most efficient way to manage your company costs.
Instead, try to record each expense as it's incurred. If you record your costs as you make purchases, you eliminate the risk of forgetting about an expense or losing a receipt. Recording expenses as you go is also much less tedious than trying to clear a backlog of expenses from the past few weeks.
An easy way to get into the habit of recording expenses as you go is to download a mobile invoicing app like the Debitoor iOS app or Debitoor Android app. It takes just a few seconds to record an expense from your phone, and you can record expenses as and when you make purchases. Simply snap a photo of a receipt, and the app will use the information from the receipt to record an expense in your accounting & invoicing software.
Regularly reconcile your bank accounts
Bank reconciliation is the process of matching bank transactions to accounting records. Although it isn’t the most enjoyable part of running a business, it is essential for accurate accounts.
Getting into the habit of regularly reconciling your bank account is a good way to keep on top of your finances. You don’t need to match payments every day, but reconciling your bank account once a month helps you get a clear overview of your most recent transactions, with an amount of data that’s easy to manage.
Rather than trying to find the time to do this manually, use your invoicing software for automatic bank reconciliation – all you have to do is save your monthly bank statement as a CSV file, upload it, and let your software match payments and transactions. Not only is this much easier than going through invoices and expenses one by one, it also makes it quicker to locate any unmatched transactions.
Keep digital records
Save time, space, and the environment by switching from paper to digital record-keeping. In the UK, all businesses required to take part in the Making Tax Digital scheme will need to keep digital records of their VAT from April 2019, but it’s good practice for all business owners to keep online records of their finances, even if they aren’t required to just yet.
By choosing cloud-based invoicing software, you’ll have instant, online access to every invoice you’ve sent and every expense you’ve recorded, as well your tax returns and financial reports – no need for folders and filing cabinets. And rather than combing through pages of information, you can quickly search for a specific invoice, expense, quote, or credit note and find what you need in a matter of seconds.
Plus, your accountant will thank you for it; rather than sending over bulky files, you can work together through your online account, giving them easy, secure access to the data they need.