Why bookkeeping should be a priority for small businesses

10th August 2022

Bookkeeping

The dictionary definition of bookkeeping is ‘the activity or occupation of keeping records of the financial affairs of a business.‘  That seems simple enough, but according to Clutch, a quarter of businesses still record their finances on paper and nearly half of the businesses surveyed don’t employ either an accountant or bookkeeper!  When you consider how complicated accounting and taxation can be, I wonder how wise this is?

So what are some of the benefits of bookkeeping?

Budgeting & Planning

Maintaining accurate records allows you to start planning ahead; budgeting and forecasting.  Once you have created your budget/ forecast, you can track your performance against it.  This helps you spot patterns, errors and most importantly, opportunities.

Access to Historical Information

It is likely that at some point you (or your business) may want to apply for a grant, loan or other source of financing.  Having an accurate record of your historical finances, will enable you to more easily fulfil requests from lenders who will usually ask for financial details; turnover for the prior year, profitability, liabilities, assets held by the business etc.

You will also be able to track your progress over time, or compare Q2 this year with Q2 last year for example.  This is another way of identifying the performance of your business.  But the key is having accurately maintained data in the first place.

Reduced Errors

By maintaining financial records you are more likely to reduce errors such as paying people twice, or overlooking amounts owed to you.

Compliance with Statutory Requirements

I can only imagine what it must be like when, let’s say, it is time to produce a quarterly VAT return but none of the information for that quarter has been recorded anywhere?  It would be a scramble to get the information pulled together in a short space of time, potentially leading to errors or omissions.

Compare that stressful situation with the person who regularly records their financial transactions.  All they need to do is casually check the VAT return, and submit it.

DIY or Employ a Bookkeeper?

Perhaps there’s an argument that doing it yourself is a no-brainer, nowadays.  Software such as Xero, Quickbooks or FreeAgent are all being designed with the ‘non-accountant’ small-business owner in mind.  They try to make things as easy as possible so you can indeed do it yourself.  Automated data import from your bank, easy bank reconciliations and Making Tax Digital are pretty much standard.  If you are so inclined, you can definitely run your businesses finances perfectly well using such software and with little to no assistance from anyone else.

The alternative is paying someone to do it for you.  That may seem like the crazy option, especially given what I have just said about how easy it is to do it yourself.  Let me provide an example.

Tools are available to enable anyone to design and create their own website and branding.  I started out down that route but with ZERO design experience or more importantly, skill.  I wasted hours attempting to create even the simplest of websites with the net result of nothing to show for it.  How much money could I have earned in that time?  How much did it cost for me to attempt something which I am not skilled at?

In the end, someone with actual design skills created my branding and this lovely website for me.  Yes, it cost me money, but while it was being designed and built, I earned money doing stuff I can do!

The moral of the story is this: perhaps you can do your own bookkeeping, but consider what you are NOT doing while you are maintaining your own financial records!

If you want to have a free no-obligation chat with me about how I might be able to help you out with your bookkeeping requirements, get in touch.