How to Do Bookkeeping Correctly? 6 Mistakes Businesses Should Avoid

If you own a retail business, you know how much work it takes to keep up with the demands of consumers. You have to make sure your products are fresh and exciting and that your brand stands out from the crowd.

However, you also have to focus on managing your company’s daily finances to ensure the business can make a profit and adhere to its tax and compliance obligations.

Like any other business, big and small retail stores cannot escape the task of bookkeeping. This refers to keeping track of all the transactions—both on the revenue and expense side—that occur throughout your daily operations. The work of a bookkeeper is to ensure that everything is accounted for and managed properly.

Bookkeeping is one of the most crucial processes in running a retail business due to the potentially high volume of daily transactions. It is also one of the easiest processes to let slip as companies often focus more on selling, branding and customer experience.
If you’re looking for help handling bookkeeping for retail businesses here in the Philippines, this article will help you to identify common bookkeeping mistakes and how to overcome them!

What is Bookkeeping?

Bookkeeping is the process of recording all daily business financial transactions, including the identification and classification of sales, purchases, and payments. A bookkeeper’s precise tracking of a company’s costs and earnings enables management to make smart financial decisions, improving overall cash flow management and growth opportunities within the organisation.

Learning how to do bookkeeping also helps to understand that it actually differs from accounting. Bookkeeping is concerned more with the details of how much money goes in and out of business and ensuring that those details are captured accurately and on a timely basis. On the other hand, accounting requires analysis and interpretation of the financial information generated by the business via accounting books.

When it comes to retail businesses in the Philippines, bookkeeping can pose a number of challenges for owners and internal accounting teams. Here are just some reasons such challenges can arise:

• With the rise of eCommerce and hundreds of online selling platforms and online marketplaces enabling a much wider market, sales transactions can now come through a large number of different channels (in-store, eCommerce website, social media, Lazada, Shopee, etc.). It can be challenging to ensure transactions across all sales channels are properly validated and consolidated.

• With the rise of payment gateways, portals and e-wallets, customers now have more methods to actually make payments than ever before (cash, debit card, credit card, online banking, e-wallet, etc.). Again, matching and reconciliation of payments is now a much trickier task!

• Supplies and inventory management include settling dues with the vendor. Many retail businesses will buy their products on terms (i.e. payment at a later date) from suppliers and/or vendors. During the COVID-19 pandemic, many suppliers and vendors reduced or eliminated their payment terms. As such, bookkeepers must constantly ensure greater vigilance when identifying which suppliers have been paid, which bills are falling due, and importantly, keep a close eye on available cash reserves and cash flow of the business.

• The Tax Code of the Philippines, as well as additional Bureau of Internal Revenue (BIR) issuances and memorandums, are quite specific about the supporting documentation that companies, including retail companies, require to ensure that their business transactions, on the sales side and on the expense side, can be properly vouched for and supported. This is particularly important during audit season. This impacts the bookkeeping activities, as bookkeepers must ensure that the correct supporting documentation is available before classifying or booking a transaction.

Above are just some of the challenges that can affect, and which must be considered by, bookkeepers in the Philippines when performing bookkeeping for retail companies.

Importance of Bookkeeping for Philippine Retail Businesses

Proper bookkeeping is critical for the success and growth of any retail business in the Philippines. Bookkeeping allows SMEs to track, organise and analyse financial information. This information can help them make decisions on financial health and comply with government regulations.

However, many retail businesses struggle with common bookkeeping mistakes or overlook the importance of bookkeeping in their daily operations. These errors can lead to financial mismanagement, missed tax deadlines, and even legal issues down the line.

Common Bookkeeping Mistakes to Watch Out For

Below are 9 common mistakes that businesses make when dealing with their accounting, bookkeeping and finance functions. We have also gone one step further – we explain what companies can do to make sure that these mistakes don’t happen.

Mistake No. 1 – Poor Record-Keeping

When a business does not keep on top of its record-keeping activities, a risk arises of having unrecorded or improperly recorded transactions on its books of accounts.

This is unhelpful from a commercial perspective as it can lead to supporting documents such as invoices, receipts, billing statements, purchase orders, etc, being incorrectly completed, submitted or stored.

It is also unhelpful from a compliance and regulatory perspective. During a tax audit, for example, the Bureau of Internal Revenue, or BIR, might request the company to submit certain supporting documents. If the accounting records are incomplete or disorganised, it is going to be very difficult to comply with this important request from the tax authorities.

Other potential consequences of poor record-keeping include:

1. Credit issues, especially if the business cannot provide reliable data to financial institutions
2. Lost sales, due to a lack of transaction recording
3. Disputes with customers or suppliers, which are much harder to resolve without a complete paper trail
4. Poor decision-making, arising from unreliable information
5. Here are 4 other reasons to implement record-keeping processes in your business and what might happen if you don’t!

Don’t worry though – all is not lost! Here’s a step-by-step guide to help improve your company’s record-keeping processes:

1. Perform an overall assessment of your existing book and record-keeping processes. Identify any mistakes or shortcomings in the process. Catch-up accounting services might be necessary!
2. Create a manual or guide of procedures detailing how to record the different types of accounting transactions (e.g. collections, invoice payments, etc) which should also include a sign-off mechanism
3. Train all relevant employees carefully through these new procedures
4. Consider going paperless through the use of online accounting solutions (e.g. Xero, Quickbooks Online) and cloud accounting. But remember – hard copies should also be maintained, stored and organised properly!

Mistake No. 2 – Absent or Incomplete Bank Reconciliations

Bank reconciliation is the process of matching bank records with cash records to identify unrecorded transactions or differences within your accounts and then reconciling them. It also helps to determine how much cash a business has to hand.

We identified Bank reconciliations as a key accounting term in our recent article on the important accounting and bookkeeping concepts that managers and owners in the Philippines should know.

A common problem for businesses that fail to perform bank reconciliations involves outstanding checks. Outstanding checks are checks issued by the business but which have not yet been presented for payment by the payee.

For example, if a company has P250,000 in the bank, but has outstanding checks issued to the value of P100,000, the company has much less money than its cash balance might indicate. Failing to perform a bank reconciliation may mean that this information won’t be considered!

2 tips to simplify and add value to your bank reconciliation process:

1. Perform Reconciliations More Regularly: If one month’s worth of transactions is proving too much to reconcile at one time, consider performing two reconciliations per month (resource-dependent).
2. Transition to Cloud Accounting: Some online accounting solutions have user-friendly reconciliation features built in. This enables a more efficient, accurate and automated bank reconciliation process.

Check out our previous article on Bank Reconciliations: Why it matters for more in-depth analysis.

Mistake No. 3 – Inaccurate or Incomplete Tax Filings

Taxation, taxation, taxation – a key consideration in every accounting and bookkeeping process!

In short, companies are required to report their income and expenses to the government or BIR in order to pay the necessary taxes. Inaccurate or incomplete tax filings are one of the most common bookkeeping mistakes made by businesses.

There are penalties for companies who fail to submit tax returns or who make errors when submitting their tax returns. Reasons for this might include human error, lack of resources to manage the accounting function or a lack of specialised accountancy knowledge and expertise when it comes to tax laws, regulations and compliance.

Here are some common tax filing errors:

• “Nil filings” are not submitted. A ‘Nil’ tax filing is the filing of a tax form where there is zero tax payable. Remember – even if no tax is payable, tax forms still need to be filed
• Incomplete or missing attachments on tax forms
• Inconsistent data in tax forms. The data inputted in a tax form must be reconciled with other tax forms. For example:
  • Sales in quarterly VAT filings vs. Sales in Annual Income tax return
  • Payroll in 1601C filings vs. Payroll in Annual income tax return
  • Inventory in Annual Inventory list vs. Inventory costs in Annual Income tax return. Check out our recent article on inventory in the retail sector.

So how can companies avoid submitting inaccurate or incomplete tax filings?

1. Hire a Qualified Accounting Professional: A qualified accountant fully understands all tax regulations. If you don’t wish to directly hire a tax professional, there are many benefits to outsourcing to an accounting and finance service provider in the Philippines.
2. Follow a Trusted Tax Calendar: A tax calendar helps ensure you never miss a tax filing. Make sure to check out our Tax Calendar which is updated before the start of every month!

Mistake No. 4 – Not Consolidating Sales Data Across All Sales Channels

Today, as a retail store, you can sell your products in more ways than one—retail businesses are no longer limited to in-store sales simply in cash! If you have a retail business, you might have many sales channels available for your customers. For example:

• In-store cash sales
• Credit card sales
• Bank transfer sales
• E-wallet sales such as Maya and GCash
• Online marketplaces such as Lazada, Shopee, Zalora and many others
• Social media sales via Facebook, Instagram, etc.

If that’s the case, you need an effective strategy to track your sales across these multiple sales channels to accurately see how much revenue your business is bringing in daily. Retail businesses also need to ensure that they are matching and reconciling payments received for all such sales at the back end. The sales and payment validation and reconciliation process is a critical process for retail businesses with numerous sales channels as it can help you make informed decisions based on accurate underlying data about how best to grow and expand your business.

Mistake No. 5 – Not Using a Point-of-Sale (POS) System

While your organization can run bookkeeping tasks manually, retail businesses should always consider the benefits of using technology and applications like a point-of-sale system (POS) to help make the entire process more efficient.

A POS is a computer-based system for retail stores that records and processes transactions in real time. It helps manage inventory and customer loyalty programs, track sales and expenses, and generate reports as needed.

Your business can be more susceptible to human errors if you don’t have POS yet. A lack of a POS can also make it difficult to understand gaps in data, fraud or theft within the business and in general, it makes it more difficult for retail businesses to get real-time and accurate financial data about the business.

Mistake No. 6 – Trying to Do It Yourself

When you’re just starting, it’s easy to think that you can do your bookkeeping tasks independently. Business owners often ask how to do bookkeeping on their own. However, your success will depend on the limits of your financial expertise and knowledge.

This is where professional bookkeepers come in. Hiring one can significantly enhance the financial management of any business. Here is why enlisting bookkeeping services is valuable for your business:

1. Expertise and Knowledge: Bookkeepers possess specialized training and experience in accounting principles and practices. They stay updated on the latest regulations and compliance requirements, ensuring that your business adheres to local laws.
2. Time Savings: Managing finances can be time-consuming, especially for small business owners who often juggle multiple responsibilities. A professional bookkeeper allows business owners to focus on core operations and strategic growth rather than getting bogged down in financial details.
3. Accurate Financial Records: Bookkeepers keep your records secure and organized so you know where to find them and how to sort through them. They use tools and techniques to maintain accuracy, reducing the likelihood of bookkeeping mistakes that can lead to discrepancies or compliance violations.
4. Financial Insights: A professional bookkeeper can provide valuable insights into your business’s financial health. These insights can help you make informed decisions, identify areas for improvement, and aid budgeting.
5. Streamlined Processes: Professional bookkeepers implement efficient systems and practices that make it easier to track income and expenses and manage cash flow.
6. Scalability: As businesses grow, their financial management needs become more complex. Professional bookkeepers can adapt to changing requirements by providing scalable solutions that can keep up with your business’ growth.
7. Peace of Mind: Knowing that you are not alone in managing your business’ finances can alleviate stress for business owners. This peace of mind allows you to focus on more important and urgent matters without worrying about bookkeeping issues.

Consistency and Efficiency for Your Bookkeeping Needs

There are a lot of things that go into bookkeeping. Without an established bookkeeping process, your retail business can suffer great losses in this competitive industry. You want to ensure that you operate consistently and efficiently on your bookkeeping responsibilities, and the best way to do that is by partnering up with experts in the field.

CloudCFO is a cloud accounting firm that offers bookkeeping services and other finance services for retail startups and small businesses in the Philippines. We have worked with many retail companies across the country, making our team very familiar with the business model, challenges and pain points from a bookkeeping and tax compliance perspective.

Let CloudCfo be your next growth partner! Contact us today to learn more.