What is bookkeeping?
Bookkeeping means maintaining a record of your business income and expenses in order to balance the books every month and keep your business organised. Keeping on top of the books is crucial to the success of any business.
Bookkeeping can often get confused with accounting, which is the overall financial reporting of your business over a period of time. Bookkeeping is the basic step of accounting.
Why is bookkeeping important?
Falling behind on bookkeeping could lead to difficulties paying for things like suppliers, stock and your taxes.
Here are five reasons why bookkeeping is important for your business.
- Improve financial management
Recording the data of your business transactions and activity in well maintained balance sheets helps keep your cashflow under control. Clear records will help you to reconcile transactions against your bank statement and credit card statements to ensure they match. It makes VAT easy to reconcile. It helps you manage credit and to keep your debtors under control. It’s good practice to maintain records monthly.
- Increase efficiency with accounting software
Investing in automating your bookkeeping can help you save a lot of time on tricky calculations and data processing. Many software providers let you update your accounts from your phone, performing tasks such as scanning receipts and sending invoices, so the admin doesn’t pile up. They also give you reminders to keep on top of things like VAT, unpaid invoices and bank reconciliations.
Alternatively, you can hire a bookkeeper to reduce your workload. They can help you organise, record and report on financial transactions and are comfortable using various software. Qualified bookkeepers are registered with ICB.
- Plan better and achieve growth targets
Evaluating your incoming and outgoing funds regularly helps you to understand how well your business is performing and make the necessary changes to become more efficient as a business. Poor financial records and inaccurate data can inhibit you from setting and achieving your growth goals.
- Simple and accurate tax filing
Bookkeeping is an essential step in the process of filing your tax return to HMRC. While it can be anxiety inducing, having an up-to-date and organised system allows you to easily and accurately track and submit your income and expenses without being flooded by receipts and bank statements at year end.
- Keep on top of government requirements
With many different taxes and obligations, effective bookkeeping means you have better foresight of what is due throughout the year. With new initiatives such as Making Tax Digital (MTD) emerging all the time, good bookkeeping allows you to worry less about missing payments and facing penalties and more on successfully growing your business.
Using accounting software and working with a qualified bookkeeper can remove a lot of the stress and lets you focus on running your business.