The importance of having an intricate understanding of your business finances is crucial in helping you run the company smoothly and grow the business.
I learnt the important lesson of keeping on top of my business finances whilst running Archway Books, a chain of bookshops serving communities across the north of England. The process of cashing up and adding the totals to spreadsheets only took a few minutes every day.
However, doing this helped me track the sales my chain of bookshops generated. Importantly, I could compare the sales figures with records from the previous week, month, or year. Ultimately, it helped me track my cash flow and grow my business. At the same time, these records ensured I sent invoices on time or chased late payment before supplying more books. Along with accurate bank reconciliation, these records formed the backbone of how I ran my business.
Personally, I enjoy working with numbers. As such, completing my own bookkeeping was never a daunting task. However, not everyone will enjoy dealing with numbers. It is highly likely that most business owners have no thought of bookkeeping when setting up their businesses. Keeping an accurate record is, therefore, low down the priority list. If this is the case, there is the option to outsource to a specialist bookkeeper such as Bould Bookkeeping.
Why is Bookkeeping Important?
As with all other important parts of running a business (such as technology, marketing, and customer relations), effective and efficient bookkeeping is essential to running a successful business. It is that much more important when you want to expand your business in the long run.
You always have the option of learning all elements that go into effective bookkeeping. However, you will have to dedicate a lot of time, which many business owners do not have to spare. Alternatively, you can outsource to experienced specialists.
When planning to outsource the bookkeeping part of your business, it is important to place a priority on the value the service adds to your business, rather than basing your decision purely based on cost. For instance, you benefit from the peace of mind, having a professional have a keen eye on your company finances, and freeing up more time to focus on your main business – serving your customer or clients.
With improved technology, automated bookkeeping has improved tremendously and the choice of reports is extensive and varied. All these help you understand your company’s financial position better. That said, you ought to make the most of such reports. Ensure you understand the profit and loss reports (not just the Statement of Financial Position) and the balance sheet that shows your company’s financial position at any given point in time. Keep a keen eye on asset depreciation as well. There are many financial terms involved in bookkeeping, which might make it all seem daunting.
Nonetheless, booking is an important part of running your business. It helps you avoid penalties associated with late accounting submissions. It also helps your cash flow by having access to and knowing the up-to-date account information. This is something I feel is crucial.
Many businesses neglect their accounts to be completed once a year by professional accountants during tax season. Ideally, however, company finances should be checked and kept in order more often than that, either by the business or their bookkeeper. Keeping a close eye on your company finances allows you to closely monitor many key indicators for your business. These elements include net and gross profit margins, the expected turnover, and much more, all of which help your cash flow better.
Benefits of Bookkeeping
- Instant reporting;
- Detailed Recording – An experienced dedicated bookkeeper will keep a detailed record of your accounts and keep them up to date;
- You always stay compliant with the law, even when it changes;
- Better tax prediction;
- It gives your business a response time;
- You cultivate better relations investors and banks;
- It makes planning easier;
- Faster financial analysis while diminishing the cost of accounting incurred;
- Easier to audit – You can use the detailed balance sheets to compare with the statements.