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Finance - October 27, 2022

7 Tips to Fix Your Messy Financials

Every day, business owners deal with a variety of difficulties, including backroom inventory overflow, scheduling issues, and messy finances. 

Messes can harm a business if they are not controlled. They also bring headaches and late nights.

Many small businesses are unaware that an astounding 80% of American firms fail within the first 18 months because of messy occurrences in the venture.

Unfortunately, there will always be some mess since that is just how running a small business is.

However, it should never be about having a messy accounting record. Having accurate data is important to keeping clean financial records. Clean financials are not only preferred; in all circumstances, they are actually necessary.

Having zero messy financials is a necessary factor, for instance, when obtaining investors or partners. Giving false financial information can ruin a deal in progress or lead to fines down the road.

Furthermore, in the event of an audit, these records are always necessary. Absence of which might cause the audit process to be delayed, and supplying jumbled or incomplete records can lead to fines and other unfavourable outcomes.

Without much ado, let’s take a look at seven tips to fix your messy financials.  

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1. Create a checklist of important documents to have on hand 

Making sure you have close at hand all crucial financial records pertaining to your business activities from the previous year – and all prior years- is the first step towards getting things cleaned up.

Receipts, bills, and cancelled checks, as well as any legal documents pertaining to your company, loan agreements, including a copy of the original loan, logs or diaries that may detail your travel plans or job-hunting activities, tickets, including lottery or travel tickets, and theft or loss documentation are some important documents to gather.

2. Ensure your inventory and asset records align with reality

Your declared inventory and fixed asset levels may differ from what you actually have on hand over the course of a year. This is particularly likely if you track your assets manually rather than automatically.

Fixed assets are large investments that you intend to keep on your balance sheet for years. They can be particularly problematic. “Ghost assets” are fixed assets that are recorded on your books but do not exist in reality (due to loss, theft, or malfunctions). 

Due to their worth being larger than it should be, these ghosts disrupt productivity.

At the end of the year, take the time to audit and account for all of your assets to ensure that your filings are accurate. You will benefit from this in terms of logistics and law.

3. Reconcile your bank and credit account statement 

Are there any discrepancies between the balances on your statements and those reported on your own balance sheet?

Only comparing the two will reveal the truth. Examine the closing balance on your bank statement, deducting any unpaid checks and adding any incoming deposits. This sum must correspond to the balance of the cash account on your balance sheet.

4. Collect on account receivable, deliver on account payable

According to generally accepted accounting principles (GAAP), you must collect payment for your services in the same year if you charge someone for it.

Some companies falsify their records and don’t start collecting until January, which allows them to postpone paying taxes on the payment until the following year.

This is typically discouraged, especially by organisations that want to have a clear picture of your company, such the lenders for the majority of business loans.

5. Button up all your accounts, transactions, and expenses

The end of the year is an excellent time to close out any old or dormant accounts with clients, partners, and former workers.

Make sure your transactions match up on both your internal books and your tax filings. Additionally, make sure that all of your merchant fees, sales taxes, and gross sales are either accounted for or paid in full.

6. Review your profit and loss statement 

Your profit and loss statement calculates your company’s net income by adding up your revenues, expenditures, and expenses. Your expenses should be classified as well to assist you keep them organised.

Create a profit and loss statement and examine individual transactions—names, dates, and amounts—to see if you can determine why some months may be noticeably lower than others. You can also look at monthly levels to discover significant swings.

The time has come to correct any transactions that may have been incorrectly categorised, duplicated, or not posted at all.

7. Prepare for your payroll responsibilities 

A payroll reconciliation is important when paying your employee’s salaries. It also helps in paying taxes.  

Payroll reconciliation is the process of making sure the figures in your payroll register and the sum you want to pay your employees match. 

In order to ensure that you pay your staff accurately, the simplest way to think about it is to double-check your calculations.

Even though it might not be your favourite small business task, it is important to perform payroll reconciliation on a monthly basis so that you can:

Paying employees fairly. After just one or two wage concerns, a staggering 49% of workers say they would begin looking for a new position.

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