Is Bookkeeping Important?

Bookkeeping is an integral part of the success of any organisation big or small. It’s time-consuming and sometimes tedious but it’s one of those tasks that if neglected could cost your business dearly. In fact, an average of 9 out of 10 small businesses fail due to a total lack of or weak financial reporting.

So what is Bookkeeping?

It is simply the process of recording financial transactions.

It’s the first basic step of the accounting process which involves classifying, reporting and analysing of financial data.

Good books mean a better understanding of your business, easier tax filing and more efficient organisation in general and none of that can take place if there is no organized and accurate bookkeeping.

The importance of bookkeeping cannot be emphasized enough, but here are top reasons why this is vital to the health and life of your business.

Planning Purposes

Bookkeeping presents the past financial performance of your company. In order to plan for the future, you have to have a good understanding of the past. Bookkeeping will give you the clear picture of what exactly works or doesn’t work.

If You have accurately recorded your financial transactions, the Profit & Loss and Balance Sheet are enough to check if the company is on the right track financially.

Effective bookkeeping can also allow you the wiggle room to plan for ‘favorable’ expenses. For example, if you provide lunch during regular client meetings, this could be classified under tax benefits to your business.

Easy Reporting to Investors

Your Investors would want to know the financial performance of your business to be able to quantify the value of their investment. Financial statements like the balance sheet, income statement, and cash flow statement are the products of effective bookkeeping.

Bookkeeping allows investors to have up-to-date and accessible information. Investors will be able to make better, well informed, decisions which is the ultimate purpose of bookkeeping.

Bookkeeping is not only for current investors but for future investors too. Prospective investors are more likely to invest in your business when you have organized financial information. Just think about it, if you were an investor, would you invest in a company that didn’t have accessible and organized financial records?

Financial Management

Bookkeeping is important because it allows you to take control of your business’ finances. Bookkeeping paints a clear picture of how you spend money. You can see outstanding invoices owed by you or your customers. You will benefit from paying your bills on time and receiving payment for your products or services on time too.

If invoices are delayed and you fail to pay suppliers on time, you may be blacklisted by the supplier which would cause your business to fail.

It is this delicate balance of cash inflow and outflow that will keep your business going.

It’s important that you keep control of your business finances, whether you are self-employed or own a limited company or partnership. Organised finances make it easier to fill in your returns and put your business in a stronger position. What’s more, you are required to keep certain records, particularly if you are a limited company and HMRC could ask to see your books at any time.

My advice for financial record keeping is based on many years’ experience in bookkeeper services:

Start as you mean to go on – the more organised you are from the very start, the easier it is to get into good habits. Instead of frustrating yourself by trying to sort out a whole load of paper receipts or reconciling your bank account without any reference all at once, recording such transactions on the go would save you a lot of time down the line.

Think about buying financial software – this does not remove the need for professional bookkeeping, but it will help to make things easier for you and for your bookkeeper. I personally recommend Quickbooks as it is very easy to use and understand.

Also, with the likelihood of digital tax filing for all businesses under HMRC’s Making Tax Digital initiative, you will be required to keep digital records anyway in the next couple of years, so it’s advisable to get into the habit now.

File your receipts – This is the only way you can prove what you’ve spent on your business. Many expenses are claimable for tax purposes, so find out from your accountant what you can claim for and make sure you have receipts that back up your spending.

For bigger businesses, you can also note which client you have incurred the costs for, as this will help with future business planning and understanding your costs and margins. Get into the habit of filing and recording them as you go – once a week for example – so that you don’t have a huge pile to wade through at the end of the tax year.

Keep bank accounts separate – Do not combine your business and personal accounts. It gets messy and it’s difficult for your business bookkeeper to see what expenses are related to your business and what is personal. Instead, set up a separate bank account for your business and, if possible, give your bookkeeper access to it so that they can keep track of your latest transactions and flag up anything that looks out of the ordinary.

All expenses count – For the purposes of your business account, all expenses incurred in the running of the business are important. If you have employees, you need to account for their direct and indirect costs. You will also need to consider all business travel expenses, the cost of equipment and stock, and rent, utilities and other running costs. A good bookkeeper will make sure that you know exactly what paperwork, statements or accounts are needed to keep accurate and relevant records.

Bookkeeping for small business owners can be extremely straightforward, depending on the type of business you run. You may choose to hire someone to handle your books in-house, or you may follow an increasing number of small businesses who have outsourced their bookkeeping to a virtual assistant. The added benefit to using a virtual asasistant is that they can work as part of your team providing additional support services at the same time without representing a big cost to the business.

This is where hiring a Virtual Assistant like salma-va would be profitable to yourself and your business.Contact us today to 07955703405 or info@salam-va.co.uk to get a personalized quote on how we can support your business.

Heba Salma is a skilled administrative support professional and founder of Salma-VA, a virtual assistance firm. With solid administrative support experience from working with top executives, She decided to start her firm to support small business owners and provide a helpful, friendly service that makes all the difference. When not immersed in the small business world, Salma loves trying new recipes and spending time with her lovely family.

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