Most business owners want to spend time selling products or services and winning new business rather than studying their finances. Spending time with customers may seem much more productive and likely to increase revenue than poring over bank statements.
When going into business, bookkeeping is a task that cannot be put to the bottom of the list. Avoiding keeping on top of the books can cause companies problems further down the line and often putting off sorting the issue can make matters worse, particularly when it comes to Self Assessment Tax Returns and other end of the financial year requirements.
Accurate bookkeeping gives you an invaluable overview about your business that enables you to plan the short and long term future of your business as well as make contingencies or ways to gain more business.
We have prepared a guide that sets out the role bookkeeping can play in your business and how we can help you achieve that.
What services does a bookkeeper provide?
In its simplest form accurate bookkeeping tracks income and expenses on a daily basis helping you to manage cash flow. You will know at a glance how your business is doing in terms of financial health which helps you to make informed decisions about where to direct your focus next.
How is bookkeeping different from accounting?
Whilst both relate to business finances the similarities between bookkeeping and accounting ends there. Bookkeeping is a method of documenting your financial transactions. Accountancy is ultimately assessing how the business is doing overall using that information. Bookkeeping is the administrative process whereas accountancy analyses the whole financial picture.
Why do I need bookkeeping?
The value of timely bookkeeping should not be underestimated as it forms a cornerstone to any business. Any small and medium sized business should adopt some form of bookkeeping - many business owners find it easier to hire professional bookkeeping services for peace of mind. There are other benefits too such as:
1) Pick up tax deductions – using bookkeeping software is often tax deductible but without knowing the bigger picture and keeping up to date books you might never have known.
2) Access to loans or other credit – in order to secure a bank loan or other form of credit, lenders need to see accurate books, cash flow and tax returns. Without these then access to loans or credit becomes quickly limited.
3) See unnecessary spending sooner – new businesses are often quick to spend money on subscriptions or other services when first starting out. After a few months owners may hone in more on what is useful and what is not. Bookkeeping can help you to filter out that which isn't useful by keeping on top of payments and expenditure that is no longer required.
Understanding bookkeeping jargon
Typical of any financial process, bookkeeping comes hand in hand with a lot of jargon and specific terminology. Here are some of the basic types of bookkeeping defined:
What bookkeeping system should I use?
By far the most common bookkeeping system to use is one that incorporates cloud accounting software. This kind of system is by far the most effective and gives businesses a real time live picture of their finances and can typically be accessible from anywhere.
Gone are the days when business owners were reliant on complex spreadsheets, using the latest version of a particular programme or they had to choose between single or double entry bookkeeping.
Utilising cloud accounting software means that your business can work from the latest information at any time, your data is more secure and transactions can be much quicker than traditional bookkeeping systems.
When to look at outsourcing bookkeeping
Even armed with all the relevant information about what is required to maintain accurate records it is still possible that a business owner can find the responsibility too overwhelming when coupled with their day to day tasks and the demands from customers.
At this point it is worth looking at outsourcing to a professional bookkeeper who can provide support on a regular basis and act as an extension to your internal team.
If your business is showing the following traits it could be a worthwhile investment to look for external help.
A qualified bookkeeper can help you to present your financial information to lenders. This could save you a great deal of heartache as they will know from the start the type of information a bank will be looking for.
If you are spending more time looking at the books than creating sales or generating new business then it could well be time to look for help.
In order to optimise revenue you will need additional financial information. This could easily be prepared by a professional bookkeeper and could help your business move forward financially with ease.
How to determine your bookkeeping requirements?
Once you have mastered the basic terminology and rationale for bookkeeping the next stage is about adopting best practice and implementation. We have outlined 3 different approaches below:
1) Separate personal finances
Keeping business finance separate from your personal transactions can help when it comes to deducting tax. The key rule for business expenditure is “Wholly, Exclusively and Necessary”. This means the expenses must be incurred when doing business or attracting new business.
In short anything that doesn't help your business move forward or help nurture business growth should be documented as a personal financial transaction.
2) Save up for taxation
Meeting your business targets and key performance indicators is all well and good but if you haven't factored in taxes then you could find yourself in debt at the year when compiling annual accounts. Setting money aside for taxes will stand you in good stead for the time when taxes need paying.
3) Set aside monthly time
Leaving things to the last minute is not recommended. Trying to go through things in one go at the end of the tax year could spell trouble and will be a huge amount of hassle. Setting time aside each month and sticking to it is vital to stay on track and facilitate business success rather than be constantly chasing your tail. It will also enable you to identify spend that is working for you or isn't - such as advertising spend.
Are you looking for bookkeeping services?
As outlined at the start, bookkeeping really cannot be avoided by business owners. Hopefully we have inspired you and given you some useful information about how to get going.
A professional bookkeeper like Aimtrac can help your business flourish and take away the pressure from your internal resources. Working with us means that we complement your business and act as a resource partner, providing you with a personal service for your bookkeeping needs.
We can provide you an initial consultation by way of a bookkeeping health check with our Head of Bookkeeping & Payroll, Sharon Ashmore. From there we can help you identify a path forward for your business. Whether you require liaison with HMRC or your Accountant, help setting up financial procedures or understanding your financial position, information about cloud accounting or making your tax digital we can provide a complete solution.