Many associations, especially those in the start-up phase, may lack expertise in accounting or bookkeeping. Consequently, they often encounter avoidable accounting errors. Here are some fundamental accounting principles that associations need to understand before initiating their operations.
Maintain a strict separation between business and personal funds
One fundamental principle in business finance is the strict segregation of business and personal funds. Unfortunately, many associations still fall into the trap of intermingling these funds. It’s crucial to establish and maintain a separate business checking account exclusively for business operations. Using the business account for personal expenses and vice versa can lead to confusion and potential issues, including complications with tax authorities.
Set up a bookkeeping and accounting system from Day One
Many associations tend to overlook the importance of setting up accounting policies and procedures from the outset. However, establishing a robust system from day one can significantly streamline operations and prevent future headaches.
Have a system to capture, track and save your transactional documents, including:
- Accounts receivable. Keep a record of all outgoing invoices. Track and update your list every time an invoice gets paid. Hold someone accountable for collecting unpaid invoices.
- Accounts payable. Keep a paid and unpaid folder. Keep to a regular schedule and pay everything out on time.
- Expenses. Create an easy-to-use system for capturing all receipts for business expenses – especially for employees and agents who are out in the field. And try to avoid using Miscellaneous Expenses.
- Payroll documents. You’ll need to track every dime paid out in employee salary, wages, and other compensation. You’ll also need to track your payroll tax obligations and what you’ve paid out.
Set up financial controls
Accounting controls include dividing up financial authority and responsibility. Which helps provide early warning of any accounting problems.
Common financial controls include:
- Requiring two signatures on checks if in a partnership or non-profit.
- Separating transaction entry duties from payment. The same person who inputs your transactions into your accounting system should not be the same person who pays the invoices.
- Placing a low limit on all corporate credit cards except one kept in the owners.
Delegate Tasks and Avoid Overburdening Yourself
While bookkeeping is crucial, it shouldn’t consume all your time as an association leader. Outsourcing some or all bookkeeping tasks to a reputable web-based remote bookkeeping service can free up valuable time to focus on core responsibilities and business growth.
It’s important to have your bookkeeping done right from the get-go. Even if the cash is there to hire one straight away, that money can almost always be better invested in sales, marketing, or technology.
Associations can benefit from outsourcing bookkeeping to specialized associations, which can assist in establishing policies, procedures, and controls effectively from the outset.