Accurate bookkeeping is a necessity if you run your own business. It may seem to be something of a chore but it’s vitally important that you keep track of your revenue and outgoings. Many businesses which would otherwise have been successful have been brought down by their failure to maintain proper financial records. Whether you do it yourself or hire someone else to do it, bookkeeping is essential.
Taxes - You will have to provide information to HMRC regularly about your business’s profits or losses so that they can assess the amount of tax you owe. This information has to be accurate and presented in a professional manner. Failure to keep up to date with your tax affairs can lead to serious repercussions, as HMRC can impose large fines and penalties which could lead to the demise of your business.
Cash Flow - Keeping track of cash flow is critically important for any business and it’s only possible if you have accurate financial records. Many seemingly profitable and growing businesses have failed because they have suddenly been hit by an unexpected cash-flow crisis.
Expenses - Sole traders can claim specific expenses which have been wholly and exclusively incurred as part of their business. Expenses should always be paid for directly from the business bank account and should ideally be submitted on a monthly or quarterly basis. This ensures that the person doing the bookkeeping has an understanding of outgoings and can monitor them for tax and accounting purposes.
Profitability and Growth - Accurate bookkeeping allows you to see whether or not your business is actually making a profit. It is surprising how often business owners fail to keep track of this but it is obviously extremely important.
Bookkeeping also allows a business owner to have a greater understanding of how much progress has been made. You can look back and see patterns and draw comparisons with previous business years. This can provide a greater understanding of the areas within the business which make a profit and where costs might be trimmed. This kind of financial analysis can help you to avoid problems in the future.
Getting Help - Accountancy websites can provide in-depth information for any business. There is a ‘Knowledge Centre’ which has invaluable resources for sole traders and limited companies. The subjects covered include VAT, Tax Planning, Personal Tax, Company Tax, Insurance and Specialist Services.
It is, of course, possible to purchase software which you can use to carry out these bookkeeping tasks which would provide you with the data required to submit a return to HMRC. However, employing the services of a professional firm of accountants or a bookkeeper to manage the financial affairs of your company could prove to be profitable for your business in the long term. Not only would they help you to minimise your tax liabilities, but they can also provide valuable advice on other aspects of running a successful and profitable business.
Bookkeeping may seem a burden when you are trying to grow your business but it is essential if you are to not only survive but also prosper in today’s tough economic climate.
About the Author: This guest post has been written and contributed by Brit blogger Zoe, on behalf of http://www.brookson.co.uk/, who help with accounting for engineers, IT contractors and self-employed individuals.
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If a small business can’t afford a full time bookkeeper or accountant, I think they should at least have occasional outside accounting help on a monthly or quarterly basis. It could be expensive for them to wait until the end of the year to realize they had made several bookkeeping errors that could have been prevented.
Bookkeeping indeed helps a lot. I’d say that there are affordable bookkeeping services even for the small business than before. Only with a long search we can find out a reliable service provider.
I work for an accounting firm. These points are accurate. Good job Melinda.
Hey there! I really appreciate your article.
You have given a good insight and a clear picture of why bookkeeping are important for Small Business. Professional bookkeepers take care of everything as per rules and regulations and more important is that things are done timely as you have very rightly said.
Some very valid points in this post, I would agree that every business needs some form of bookkeeping whether that is done in house or outsourced. There are a lot of free/inexpensive software solutions that can help to keep things organised too.
We recently published a post discussing the differences between accounting and bookkeeping and it is plain to see that for small businesses in particular there is a big difference in the service you get and the prices you will pay so it is a good idea to know the difference.
Great post … really loved it !!!
Well, going beyond the usual bookkeeping, I can tell there is another benefit about outsourcing the bookkeeping tasks: As they are specialists, they can suggest you ways to reduce your taxes and increase your profits as well, and you end up killing two birds with a stone in the process.
Major Impotent Points
1.Improved revenue recognition and quicker conversion of accounts receivable to cash
2.Better measurement of spending allowing for better cash management
3.Real time access to account balances including credit cards, credit lines and bank accounts
4.Readily available customer and vendor records
5.Better customer and vendor relationships
6.Clear, concise transaction detail for financial statement preparation
7.Reduced time required for tax return preparation