What is Bookkeeping and why is it important for businesses?
Bookkeeping is a process for recording financial transactions, wages, expenses, and daily activities on regular basis. Bookkeeping is the first step for accounting and important for the financial management of a business or company. It is the process of collecting financial data and recording them in easy to read reports.
Bookkeeping will help you update your daily financial transactions. Properly completed Bookkeeping ensures that records are always up to date, and provide accurate data that can be used to assess the supply and demand of products and services. Bookkeeping can be done in-house or you can even outsource it. Proper Bookkeeping can help you to understand your company’s expenses and incomes. By analyzing them you can figure out what is good and bad for your business.
Importance of Bookkeeping:
Bookkeeping is all about holding a complete record of financial transactions and updating them from time to time. Bookkeeping keeps the records of how much money your business owes and how it will be received, the amount of investment and the return on it, and so on.
- Better future of a business:
Bookkeeping is very beneficial for every business and company owner. Bookkeeping helps business owners to keep their financial records on the track. It helps business owners to manage cash flow effectively and plan for the future. When it is done properly owners will meet their company goals drastically fast.
- Tax return preparation:
Also, doing proper bookkeeping will help business owners with their tax returns. Since your financial calculations are on track you will be able to report all your financial details to the HMRC accurately. Successful bookkeeping is necessary for the business owner to pay the exact amount of tax returns they should pay. Miscalculations can lead you to pay extra unnecessary taxes or even you can face huge fines and penalties. To avoid such scenarios, Bookkeeping plays an important role in providing well-organized reports on time to the HMRC.
- Organized financial reports:
To check whether your business is making profits or not, keeping your financial records through the process of bookkeeping can be very helpful. When you have all the important information on your financial reports, you can find out the exact points causing you profits or loss easily.
- Tracking the cash flow:
Tracking cash flow is important for any business. This is only possible when business owners follow the adequate steps to record the financial information through effective bookkeeping of the financial reports of a business. Bookkeeping helps to manage cashflows which is beneficial for keeping track of where the cash is coming from and where the cash has been spent. Any business can face huge losses if its cash flow is not on track.
- Better budget:
All businesses should get a good plan to organize their budgets. Problems arise when there is no budget or the budget is badly organized. Usually, you spent a lot of unnecessary money when there are no good budget plans. Maybe you are spending more money on a useless part or you are not spending enough on the main parts of your business.
Bookkeeping can help you to create effective budget plans by looking at your expenses and profits. It will help you to spend your budget in an organized manner. You can stop spending unnecessary money on the useless parts of your business and you can focus more on the important parts. It is also necessary for the growth of your business. You should be more realistic about your expenses rather than being emotional. Although you will learn ways to spend your money to get the deserving profits. Bookkeeping can help you manage your spendings while it maintains flexibility in managing your business. You will be able to share all the reports and calculations with your other departments and even to the HMRC.
- Better financial decisions:
Spending money without any pre-planning can be very dangerous for your business. Most business owners make decisions blindly. Without any spending history, they make the same mistakes again and face losses. This is extremely risky because it can be financially impactful as you are unaware of all the important financial information.
Using bookkeeping will help to get all the past details of your spendings and other mistakes. You won’t repeat those same mistakes which you made in the past. Analyzing them you will be able to make better financial decisions. This is very important for the maximum growth of your business.
- Easy to plan:
Once you get a better overview of all the business records and financial reports, it will be easy to plan and easy to imagine the future. When you have trust in your information, you can solve any problems and you can grab any opportunity quickly, without the fear of data miscalculation. A better understanding of your financial reports will help you to know what should you do and how long Is it going to take.
- Effortless audits:
It is very unfortunate when a business or company is getting audited. Not organizing your financial reports can lead you to penalties and fines. You should not have unorganized information during audits. HMRC will get more confidence to penalize you when you have messy and outdated financial reports. When you are audited, it is better to make HMRC’s job easier.
- Easy to business:
Once you fix and organize your business report you can get all the details in an instant. You can put the reports on your business meeting table without any delays. Investors or even a loan company will be interested in your business when your accounts are organized and your track records are clear. It will make your business look professional and investors will show interest in investing. Bookkeeping provides your investors with a brief and accurate look at your updated information and financial reports. Investors will be able to get a better understanding of your business. Even, you will be able to convince your future investors as well.
- Information on Profit and loss:
Without knowing your business, whether it is making profits or loss you won’t be able to grow your business. Bookkeeping will increase the business’s profitability. By using it you can create income statements. Your income statements will show you either your business is making profits or losses. You can calculate months or years of data. With this informations, you can observe your previous errors, and utilizing them you can make profits out of it.
How to do bookkeeping?
Bookkeeping is extremely time-consuming. It takes a lot of effort as well. You can easily lose track when you are making an effective bookkeeping system. But having a good bookkeeping system will be beneficial for your company. Here is a list of how to do Bookkeeping.
- Creating a new business account:
Having the same bank account as your personal and business can be very confusing for bookkeeping. You can clear the confusion by creating a new business account for your business. When you will need any information you can find it easily.
- Keep your records organized:
You can save valuable time when your records are in a good shape and well organized. You will know what you need and where it is stored. So, when the deadlines of your tax return approach you will know exactly where to look.
- Maintain your daily expenses:
Maintaining your daily expenses is a basic step of bookkeeping. If you don’t keep accurate reports of your daily expenses regularly, it will be very hard to keep your business finances on track. You should implement a system and use it to record your daily expenses every day without any mistakes.
- Keep an eys on the tax deadlines:
Set yourself a reminder so that you have enough time to file your tax return without any errors. By keeping accurate reports of your business, you can send them to the HMRC on time. You won’t have to face any penalties since there are no mistakes.
- Record all the financial transaction:
It is very important to record every financial transaction you make. Mismatch in your account balance can cause you a lot of trouble and you won’t be able to close your books.
- Create a separate budget for Tax returns:
It is better to create a separate budget for your tax returns than to pay HMRC a big amount of money suddenly. It can ruin your budget plans for your business. Giving away a big amount of money suddenly is not good for your business.
- Develop a bookkeeping system:
Bookkeeping is the daily process of recording trasactions, classifying them and abjusting bank statements. You can use softwares like Wave or Quickbook, or you can use a simple excel spreadsheet. You can outsource it or you can use online cloud-based bookkeeping. When your business will grow you can hire an in-house bookkeeper or accountant.
It depends on the situation of your business whether you do your bookkeeping by yourself to hire a professional, Understanding the basics of bookkeeping will help you to manage your financial reports better. You will be able to save a lot of time. You can protect yourself from getting penalties. And most importantly you will be able to see the potential of your business.