How to create a great bookkeeping system in just an hour a week!
Want to get to a really good place with your small business finances? Sounds like you need a great bookkeeping system. Here’s a simple guide on how to vastly improve the way you manage your books and the good news is it will only take you an hour a week.
1. Take stock of your current finances
The first step is to review your current situation. Grab a pen and a piece of paper and make some notes about what your financial systems look like right now. Here are some things you should check:
Incomings and outgoings
Think about how often you keep track of what’s coming into your business and what’s going out of it – what have you earned and what have you spent?
Consider how often you check what’s actually in your bank account against what your books say is in your bank account. You’d be surprised how often these two figures are different things!
Security and backups of your business records
Make a note of how you store your business records and think about whether or not you’re confident that they’re safe and secure. For example, if you put all your paperwork into a file which you keep in the basement, what happens if the basement floods? Are you able you recreate the records and do you have backup copies of the paperwork stored elsewhere?
Review how easy it is for you to find information. If you needed to find a particular piece of paper, would it take you a few minutes, or would it take you hours?
Invoicing and expenses
How often do you invoice your customers and how often do you track what you’ve spent out of your own pocket on business costs? If you don’t do this frequently you might forget important details.
2. Understand what a great small business bookkeeping system looks like
In order to improve your current bookkeeping method, let’s take a look at a few characteristics of a really great system.
You never have to enter the same information twice
In a great bookkeeping system, once you’ve entered a piece of information in one place it gets used everywhere. No need for duplicate entries!
Everything is easy to find
Because everything is in perfect order it doesn’t take long at all to find any information you need – no more hunting for hours to lay your hands on a particular document.
Useful information presents itself
One of the best features of a great business bookkeeping system is that after you’ve put information in, you automatically get really useful numbers back.
Your books run smoothly day-to-day
Managing your books in a great system should be really easy and it should be straightforward to put a little bit of information in and get a lot of information back out on a day-to-day basis.
Sensitive information is kept secure
You never have to worry about losing information because you’ve got backups of everything.
Your accountant is empowered
When you have good bookkeeping methods your relationship with your accountant is guaranteed to greatly improve. Instead of having to spend hours sorting out fiddly little problems, your accountant will be able give you helpful, proactive advice and become a really trusted adviser for you and your business.
3. Manage your time to make bookkeeping a habit
That’s what to look for in a great bookkeeping system, but how do you develop and maintain your own system? The answer is that you need to make it a habit!
How do you make a new habit?
Charles Duhigg in his book ‘How Habits Work’ says that habits are loops which are made up of three parts:
- The cue
- The routine
- The reward
For example, let’s imagine that you want to start going for a run every morning to get fit. The cue would be to put on your running shoes, the routine would be going out and doing your run and the reward is that you feel fantastic afterwards!
Turning bookkeeping into a habit
At FreeAgent we think that spending just an hour a week managing your business finances can help you get to that great place with your bookkeeping. Here’s how the hour a week method works in terms of setting up a habit:
The cue: set aside an hour a week to devote to your business finances
By scheduling an hour a week in advance you’ll be creating a weekly habit. Pick an hour in your diary when you know you’re usually going to be available and block that time off. Then set reminders and alarms so that you know you’ve got to do your hour a week and stick to to it!
The routine: work out what you’ll do in your hour a week
The best way to do this is to go through a checklist. Here’s one we recommend:
- Send invoices to your customers
- Check your bank statements
- Make sure you’ve paid any supplier bills that you owe
- Check the profitability of your projects
- Check your cashflow
The reward: learn something new about your business
You’ll be surprised by how much you learn about your business by spending regular time going over the books. You’ll also become more proactive, for example, when was the last time you reviewed your prices? Or, when was the last time you checked to see if there was an important anniversary coming up? Has somebody been a customer for 5, 10 or 20 years and could you give them a little gift as a thank you?
Creating a daily habit
Previously we looked at the benefit of blocking off time to spend an hour a week on your business bookkeeping, but it’s also a brilliant idea to spend just a few minutes a day on managing those fiddly little tasks. For example, when you buy a train ticket you could take a photo of the ticket then and there, saving you from having to take the ticket back home in your wallet. You could also track your working time as you go.
4. Organise your paperwork to keep your books simple
There’s often so much paperwork involved in running a business it can be difficult to know what to keep and what to discard. Here are a few items that we would highly recommend keeping hold of:
- Bank statements
- Expense receipts
- Tax documents
Sometimes there’s a legal requirement to keep pieces of paper, but mostly you’ll be able to use digital storage devices.
Storing your information digitally
If you want to keep your business records digitally it’s important to invest in a scanner. It’s also a good idea to use an online backup service to store your bookkeeping files in the cloud so that you know they are always there.
Tips for keeping organised
Whether you’re storing your bookkeeping documents on paper or digitally you’ll still need to keep them organised in order to save you time. Here are a few tips to get you started:
Keep a file for each year
If your business is small a yearly folder should be more than enough to keep all your financial records.
Divide each year into categories
Within each yearly folder you should have a subfolder for each different category of your paperwork, such as invoices, bank statements, bills, expense receipts and tax documents.
If necessary, divide each category into subcategories
If your business is a bit bigger it’s likely that dividing into year and category might not be enough. In this case, you might benefit from dividing each category into subcategories. For example, within the invoicing folder you could organise by date, by customer, by number – whatever’s going to make it easy for you to find the paperwork quickly.
The advantage of organising digitally
If you’re storing all your paperwork digitally you’re at a great advantage when it comes to searching. Try adding a unique reference to each file name – for example, the customer name and invoice number. This makes all your files really easy to pick out from the others.
When you’ve got to this really great place with your bookkeeping method, how do you make sure that you stay there? Think again about forming habits using the cue, routine, reward method.
Determining the cue
Think carefully about what would make a great cue; what’s going to make you stop what you're doing and start bookkeeping? You have to be honest about this, if you set a reminder on your calendar would you really take much notice of it? Maybe it would be better to set a reminder on your mobile phone or to get a friend or colleague to remind you.
It might also be really helpful to piggyback your bookkeeping habit onto an existing habit. For example, if you have a habit of replying to emails between 9am and 10am on a Monday morning, why not then try to do an hour of bookkeeping between 10am and 11am?
Developing the routine
The easier you make your routine, the more likely it is that you’re going to stick to it. An idea could be to keep a weekly in-tray that you fill up during the week, then when you do your hour a week you work through the in-tray until it’s empty. However, this is just an example – everybody works differently so the routine is something that you just have to develop yourself.
Establishing the reward
Having your books in order is going to feel absolutely fantastic! That’s going to be a really good reward for you in itself – your books are all in order and you’re getting this really useful information out of the business books. If this isn’t enough you could always treat yourself, for example, putting a bit of money aside every week and buying a treat every month. Be strict with this though – no bookkeeping means no reward!
5. Keep going!
The real key to forming a habit is to make sure you do it regularly. If you miss a week don’t quit! Pick yourself up and start again from next week. If you find that you’re really struggling you could always bump up the reward. Whatever works for you to encourage you to keep a regular plan in place.