There are many elements or aspects that make up a business – including accounting. For a business to be successful all these elements must be efficient and work in harmony.
Part of the many aspects for a successful business, to name a few, include:
- Having a clear goal and mission
- Business plan
- Sales
- Accounts
Many of us do not give the accounts aspect as much importance as it requires and part of that is: “it is difficult” or “I am not good with numbers”. Sometimes we even think that if we are making sales all is well. Thinking that money is coming in means a successful business is a mistaken thought.
ACCOUNTING DEPARTMENT BASICS
The very basic level of business account is a record of what is coming in and what is going out. Accounts need to be kept systematic and efficient so that one has the facts of whether the business is making profits. One should be able to quickly reference the books and see – Have all payments been made? Have all receivables been received?
Often times business owners and managers that have messy accounts use the excuse that they are not good with numbers. However, one does not have to be good with numbers to ensure that your accounts department is efficient and effective. Rather, it is important that they ensure they have systems in place and the right personnel to work efficiently in this department.
IMPORTANT TRAITS FOR GOOD ACCOUNTING PERSONNEL
For some small business owners, it could be that you take charge of the accounting functions of your business. If this is the case, while you do not need to be an accountant, it is important that you have some basic accounting knowledge. If this describes you – please take a moment to follow the facebook page AccountIT – we offer accounting courses and relevant tips and tricks for small businesses.
If you do have an accounting clerk then these are some of the basic traits they should have:
- Efficiency
- Integrity
- Honesty
- Proper qualifications and
- Consciousness
If you do have an accounts department or someone who takes care of your accounts professionally it is part of the Botswana law to be registered with BICA (Botswana Institute of Chartered Accountants)
To be registered with BICA you need to have an accounting qualification (certificate / diploma / degree / professional qualification) as well as a recommendation from two accountants who are already members.
#TIP: ENSURE YOU HAVE PROPER CONTROLS IN PLACE IF SOMEONE OTHER THAN YOU IS HANDLING MONEY BE IT CASH OR ONLINE PLATFORMS
OVERVIEW OF THE ACCOUNTING PROCESS
If your business uses some sort of accounting software that is great for ease and efficiency but you still need to know what the process entails. By knowing the process you can ensure that the entries into the package is correct and that the end result is accurate. If you do not have a package the process can still be undertaken effectively and efficiently if you know the process.
ORIGINAL ENTRY BOOKS
- SALES: for every sale you make you need to raise an invoice. Invoices must be in sequence and chronological order. These invoices must then be recorded in a sales ledger.
- PURCHASES: for everything you buy you should receive an invoice from the supplier. This is to be recorded in a purchases journal.
- BANK / CASH BOOK: you need to record of all monies received and paid.
If you use accounting software you should ensure the set-up of the above is correct and the postings into the system are in done accurately.
If you use a manual system it is also easy to have spreadsheets set up so that they are linked to facilitate the above.
HELPFUL ACCOUNTING DEFINITIONS
GENERAL LEDGER
Once the original entries are posted and are accurately entered into the correct account category the general ledger is populated. Again your accounting package will do this or properly set up excel spreadsheet will allow this process to take place easily.
#TIP avoid using miscellaneous or suspense as an account classification.
TRIAL BALANCE
This is a summary of all the balances from the general ledger. This is where you or your accountant needs to do a critical analysis of the trial balance to ensure all entries were correctly posted and that the trial balance balances.
The trial balance figures then populate the Financial Statements.
FINANCIAL STATEMENTS
This is made up primarily of two parts: 1. Income Statement and 2. Statement of Financial Position
- Income Statement shows the income and expenses for the year and how much your profit or loss is for the year.
The profit or loss will:
- Be the basis of your tax computation. You will align this to the SAT (self-assessment tax) that you paid during the year.
- Be compared to your budget and you can see if you are over or under budget and in turn look and why and set different goals and controls if required.
02. Statement of Financial Position shows your assets and liabilities of your business.
03. Statement of Cash flow shows where money was sourced from and where it was applied.
This entire process can be done through an accounting software package, excel spreadsheets adequately designed, or old fashioned pen and accounting books.
Many businesses opt for an accounting software package as people tend to believe having an accounting package takes care of the accounts. This is true if entries are correctly posted. In accurate posting not only due to genuine errors but due to lack of knowledge will render your accounts inaccurate.
Inaccurate accounts results in false information and as such you will not truly know if your business is profitable, if you owe people money, if people owe you money and if all your expenses have been captured and paid.
#TIP: FREE ACCOUNTING SOFTWARE PACKAGES ARE AVAILABLE FOR SMALL BUSINESS SUCH AS WWW.ZOHO.COM.BOOKS
To have an efficient accounting department you should have:
- Clear systems and procedures.
- Skilled / qualified personnel. (Remember anyone working in the accounts team MUST be registered with BICA).
- Timeous – transactions MUST be done on time. This will create efficiency, allow deadlines to be met, any discrepancies will show up sooner rather than later and can be dealt with immediately.
- Proper controls.
Accounting is easier than you may think, it is just a matter of having the right knowledge.
To learn more about business accounting/budget basics, check out our Budget Basics workshop.
To get started on your own accounting you’ll need a budget. You can learn more about taking the overwhelm out of budgeting here. I have also created a FREE Business Budget template that you can download and customise to your needs. Simply fill out the information below to grab it.
