Bookkeeping tip 2: Why bookkeeping is important
>> Simplifying bookkeeping, and making it a painless process <<
Bookkeeping is one element of running your own business you cannot shirk.
There's no getting away from it.
But it isn't the administrative headache many think it is.
In fact, it serves one of the most important and beneficial elements of running a business.
Bookkeeping brings clarity.
Clarity to your business and its financial position. For if you don't know what your finances look like, running your business will become very difficult very quickly.
And there are other more specific benefits to bookkeeping, and we'll cover three of the most important, and helpful, here.
Should you buy through supplier A or supplier B? Your current cash-flow and position may determine what you do. For example, supplier A will give you more credit but you may need to pay it back sooner. Whereas supplier B may give you less credit but you have more time to pay it back. Bookkeeping helps you monitor and manage your cash position and flow.
With this knowledge you may decide not to go with supplier A because you cannot see enough cash coming in to pay off the bill in time, and so going with supplier B gives you the supply's you need now, with time to pay back the credit.
If you are using an online bookkeeping tool such as QuickBooks, you can also see your financial information in one place. This has a two fold benefit:
It allows you to plan for the future by being well informed about business finances.
It makes it easier to budget. With your income and expenses organised, it's easier to review your financial resources and costs.
If you don't keep accurate and up to date books, it is harder to get an accurate view of your budget because it will be based on guesswork. A budget creates a financial roadmap for your business. With a budget, you can plan for future expenses and the resources to cover them.
Bookkeeping offers plenty of value in helping you prepare for the financial year ahead. Whether you have plans to grow the business, consolidate your position, or pay off debt. Whatever you desire, planning begins with bookkeeping.
You have a number of different taxes to pay throughout the year, and bookkeeping means you can correctly calculate how much is due.
It means you can set aside a buffer so when it comes to paying tax due there are no surprises or big hits to your finances at that time.
Also, for anyone who is self-employed or a limited company director, they to file a Self Assessment tax return. This is used to declare your earnings from employment and other income to HMRC and calculate how much you’ll need to pay in National Insurance and Income Tax. But in order to do this effectively, your bookkeeping must be organised.
Mistakes in submissions may come back to bite you in the form of penalties or additional tax to pay. Bookkeeping, again, provides you with the financial clarity needed to predict and avoid such problems.
Reduce business administration
If someone mentions bookkeeping, do you picture a mess of paperwork and receipts? This is the reality for some. And the cause for not wanting to get spend the time getting that paperwork in order.
But, as mentioned, online tools such as QuickBooks and Xero make bookkeeping easier and faster. For example, you can use your phone to take pictures of business receipts which are automatically filed for the year.
These tools also allow you to create, send, store and manage invoices, then automatically track and assign the income back to it.
You can even use it to accept credit and debit cards.
Much of the elements of bookkeeping that would mean wading through paperwork have been automated, making your business easier to run.
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P.S. Don't forget to go refer back to the other bookkeeping tips in this series.