February  2005      Vol. 14, No. 2  REAP HOME PAGE  A publication of the Center for Rural Affairs    
  << NEWSLETTER MENU  2/05      

Bookkeeping from Start to Finish: Review your Records
A “record review” checklist helps keep you on track with your business and may prevent serious losses from simple neglect or dishonesty

Even if you hire someone to do your accounting and bookkeeping, you as the business owner should do a number of items 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 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.

What?? You don’t have a budget? Stop right now and figure out how to develop a budget!

2. Scan the check register. Periodically (say every 3-4 months) you should take a look at the check register just to make sure all the payees are familiar to you.

Multiple checks 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 checks.)

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 checks, posting entries, preparing financials, etc. Look at any adjustments to the bank accounts, stale items, etc.

4. Look at canceled checks. Occasionally (say 1-2 times a year) pull out a bank statement and flip through the canceled checks making sure that all those signatures are yours, you recognize the vendors, and you scan the endorsements on the back.

Obviously, this can’t be done if you don’t get your canceled checks back from the bank. In this case you might want to spend a little extra time with the check register.

5. 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.

6. 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.

7. 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.

8. 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.

 Source: Source: SBA Online Women’s Business Center, www.onlinewbc.gov/docs/finance 
Newsletter Menu  (main)