Choosing Financial Freedom

5 Steps to Improve Objectivity in Your Small Business Bookkeeping

18 March 2022

Aubree Mccoy

One of the most important guiding principles in accounting and bookkeeping is the idea of objectivity. Objectivity, or freedom from bias and impartiality, is not something that many people would consider when analyzing their books, but it's a fundamental need if you want your business to make a profit and maintain a good reputation. How can you increase objectivity in your bookkeeping? Here are five steps to take. 

1. Outsource Bookkeeping

Turning over your bookkeeping to outside professionals is probably the best way to ensure objectivity. This is because the bookkeeper is trained in GAAP and accounting standards as well as proven ways of handling transactions. In addition, since they aren't owners or employees of your company, they aren't motivated to be biased in any way. And finally, they have ethical responsibilities in their fields. 

2. Work with an Accountant

If you can't afford to hire an impartial, independent bookkeeper for everyday work, make sure you hire an accountant or bookkeeping service for certain tasks. This may include an annual audit, seasonal cleanup of books, tax preparation, or closing the books at each period. This gives them the chance to identify objectivity concerns and help you address them. 

3. Write Down Systems

Many small businesses use processes created over time and often on an informal basis. Much of this knowledge is stored in the memories of the person who does that particular job. But this can lead to differences in bookkeeping methods, unsupported estimations, and a lack of transparency in how to reach conclusions. Write down processes and cross-train employees to increase standardization and question the validity of how your company does things. 

4. Keep Paper Trails

A paper trail refers to the written documentation of how a certain end result is achieved. It may include purchase orders, invoices, receipts, bank statements, contracts, emails, and even notes from phone or text conversations. By keeping good paper trails, either digitally or on hardcopy, you can demonstrate the objectivity of all transactions through documentation.

5. Learn the Reasoning

The more you and your staff educate themselves about accounting standards, the more they can act objectively. For example, you may be able to choose between recording asset values at either the original cost or the cost after depreciation. An accountant will help you understand the options and choose the right method for your business. Objectivity is still maintained as you document your reasoning and apply the standard universally. 

Want to know more about objectivity in your bookkeeping? Start by meeting with an accountant or bookkeeper in your state today. 

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