For the love of bookkeeping
20th September 2021
Let’s face it, unless you are an accountant, most people shudder at the thought of bookkeeping, especially when they have everything else to do while running a business. Once established, many companies employ or contract someone to do this role for them. If you are starting out and are doing the books yourself, or your plan is to employ someone from the outset, it’s really important to understand the importance of keeping an up-to-date record of your money.
A window into the world of your business
What keeping regular management accounts will do for you is give you regular insight into the state of your business. This is what they will tell you:
- How profitable your business is
- They act as an early warning system if your money is running low and you can act accordingly and in time
- You can easily see where your money is mostly spent and where you can divert it to for emergencies or future investments for example
- It lets investors, banks, lenders, and landlords have a detailed idea of how well your business is run and whether it is worth supporting
Ultimately, poor decisions will be avoided and guesswork will be eliminated if you have control over your money. Good quality financial information doesn’t have to be complicated and there are many high-quality bookkeeping and accounting systems (as well as accountants!) that will help you keep on top of things.
Understanding your accounts
Another important decision you must make is what type of records you will keep. Cash accounting is the simplest form of accounts in which you record money in when you receive it and money out when you account for expenses. Accrual accounting is recorded in real time, so you would record a sale on the date an invoice is sent. Although cash accounting is popular because of its simplicity, accrual accounting is what investors and banks are used to seeing, so it’s worth getting to know how to record your money this way. There are also tax implications to choosing cash accounting over accruals so get expert advice to make sure you understand this.
If you are starting off doing the books yourself, don’t underestimate the time it takes to keep records up to date. If you are also running other aspects of the business, you might miss important information if you haven’t got the time, and you will also run the risk of not keeping up with the demands of good bookkeeping.
Even if you have accounting software to work with (which is becoming more and more essential as HMRC makes tax digital), don’t leave your accounts to the last minute. Chances are, there is a vital piece of data you have mislaid and you may miss a crucial deadline. This is bad news for your bottom line! Remember too to think about your accountant’s role in your business. We are not simply number crunchers! We can also be a virtual business partner for your business and offer objective viewpoints that you might not have considered.
Want to know more about keeping accounts for your start-up business? DOWNLOAD MY BOOK, The New Business Kit today.