The Importance of Bookkeeping for Your Business

The Importance of Bookkeeping for Your Business

What is Bookkeeping?

Bookkeeping is the accurate recording and processing of financial transactions for your business, allowing accounts to be prepared.

It involves the process of tracking all the business’s income and expenses, ensuring all transactions are accurately documented and categorised. Bookkeeping is essential for understanding a business’s financial health, aiding in decision-making, and ensuring compliance with tax and legal requirements.

Types of Bookkeeping

There are two main types of bookkeeping – Single-entry Bookkeeping and Double-entry Bookkeeping.

1. Single-Entry Bookkeeping

This method is suitable for small businesses. It involves recording each transaction once, either as income or expense.

2. Double-Entry Bookkeeping

This method is more comprehensive and suitable for larger businesses. It involves recording each transaction twice, once as a debit and once as a credit.

Importance of Bookkeeping

In summary, keeping bookkeeping up to date is an important part of running a business and can help in various ways as it allows a clear understanding of the businesses position.

Most people tend to put off boring paperwork. So how can we persuade you to give it the attention it deserves? Below are some of the reasons why it’s essential to keep your bookkeeping accurate and up to date:-

Deadlines

Having up-to-date records allows your accountant to submit any required statutory returns ahead of deadlines, avoiding penalties and interest being charged. It also allows your accountant to prepare your accounts earlier than the deadline, which enables you to plan in advance for any upcoming payments, avoiding an accumulation of payments in one go.

Planning & Budgeting

How can you plan ahead? No one can know 100% what is going to happen in the future, but having up-to-date records means you will be able to do strategic financial planning for your business, and this can only be determined by understanding the current business position.

With up-to-date information, it also allows you to monitor and control your expenses and work out the best ways to spend and invest your money.

Customer Payments

Having bookkeeping up to date is a good way of keeping on top of any receipts which may be due to your business from customers, as this allows you to run an accurate debtors report seeing who still owes you money which then you can deal with accordingly. This will also reduce bad debt risk.

VAT Returns

VAT invoices from suppliers are a big part of bookkeeping and are significantly important when it comes to keeping everything up to date, as these receipts allow you to reclaim any VAT and reduce the amount payable to HMRC.

Using software like Dext (Previously known as Receipt Bank) is an extremely useful app that allows you to upload your invoices and receipts directly, as soon as you receive them, simply by taking a picture or forwarding via email.

HMRC

The importance of bookkeeping is highlighted through the requirements of HMRC. This is because having incomplete records can become a big issue for HMRC. They can charge you penalties if your records are not “accurate, complete and readable”. If subsequent documentation turns out to prove the figures are inaccurate, you may also be liable to pay interest or further penalties if it has led to tax being underpaid.

As a limited company, you must keep your records for 6 years from the end of the last company financial year they relate (plus the current year).

Dividends & Salary

One question we often get asked is “How much dividend can I take?” or “What salary can I take?” This is where it becomes extremely important to have records up to date for the benefit of you personally.

Without up-to-date information, we are unable to advise on amounts that can be taken at that moment in time. Furthermore, we can keep an eye on this and advise you without you asking if we think this is something you are able to do and will benefit from it.

Raising Finance

Any lender will want to look at and analyse your accounts before providing funds. Having all of this up to date enables answers to all their questions. The prospect of raising finance will be significantly higher.

Soaring sales don’t always mean high profits if you don’t keep track of expenses too, and keeping all of this in order helps reduce the risk of cash flow problems and increases the chance of being able to borrow money.

Conclusion

In conclusion, bookkeeping is an essential aspect of running a successful business. It provides valuable insights into the company’s financial health, aids in legal compliance, and facilitates strategic planning. Whether you choose to do it yourself or hire a professional, maintaining accurate books can contribute significantly to your business’s success.

Bookkeeping Services at Q

Here at Q, we offer a variety of packages that suit best for your business.  Our services include using Dext and Xero which help smooth the process and if it is something that you would be interested in discussing the importance of bookkeeping further, please get in touch or book a discovery call for a free consultation.

Frequently Asked Questions

  1. Why do people need bookkeepers?

    People need bookkeepers because managing finances and keeping track of financial transactions can be time-consuming and complex. Bookkeepers provide valuable services by ensuring accurate recording, organising, and analysing of financial data. They help individuals and businesses maintain financial records, prepare financial statements, handle payroll and taxes, and make informed financial decisions.

  2. What is the difference between bookkeeping and accounting?

    The main difference between bookkeeping and accounting is their scope and purpose. Bookkeeping is the process of recording and organising financial transactions and maintaining accurate financial records, whereas accounting involves analysing, interpreting, and summarising the financial data recorded in those records.

    Bookkeeping focuses on the systematic recording of day-to-day financial transactions, such as sales, purchases, and expenses, while accounting provides a broader perspective by analysing financial information to generate reports, make financial decisions, and provide insights into the overall financial health and performance of a business.

  3. What is the most common method of bookkeeping?

    The most common method of bookkeeping is double-entry bookkeeping. In this method, every transaction is recorded as both a debit and a credit in order to maintain the balance of accounts. This method provides accurate and detailed records of financial transactions and is widely used by businesses of all sizes.

  4. How many levels of bookkeeping are there?

    There are typically three levels of bookkeeping: basic bookkeeping, intermediate bookkeeping, and advanced bookkeeping.

  5. How stressful is bookkeeping?

    Bookkeeping can be quite stressful depending on various factors. Managing financial records, ensuring accuracy, and staying up to date with regulations can be challenging and time-consuming. The stress can increase during tax seasons or while dealing with financial audits. However, with proper organisation, effective time management, and utilising suitable bookkeeping tools, the stress can be minimised.