Why should you keep your bookkeeping up to date? Bookkeeping is essential for running your business, but you would not be alone if you admitted that this task often gets pushed to the bottom of your ‘to-do list’ as you tackle more seemingly urgent day-to-day challenges. However, it is crucial to remember that failing to keep accurate and up-to-date financial records can seriously impact your company.
The Freedom In Numbers accounting team have brought together six important reasons why, as a business owner, you should prioritise bookkeeping and ensure that your financial records are continuously kept updated.
What is bookkeeping, and how is it different to accounting?
Firstly, let’s explore what bookkeeping is; this term can be confusing for some business owners, who often get this mixed up with cash flow, balance sheets and other areas of accounting. Xero describes bookkeeping as:
“The practice of recording and tracking the financial transactions of a business” – Xero
You may wonder how bookkeeping differs from general accounting or being an accountant? Well, the Association of Accounting Technicians, AAT, explain this difference as:
“Bookkeeping focuses on recording and organising financial data, while accounting is the interpretation and presentation of that data.” – AAT
There is a subtle difference here. Bookkeeping involves the systematic recording and organisation of financial data. It involves carrying out tasks such as recording financial transactions, reconciling bank statements to ensure their accuracy, generating and sending business invoices to request payment, managing supplier payments, and preparing monthly reports to summarise a company’s financial position. These tasks are all bookkeeping, but when you present this data so a business owner can interpret it to make decisions, that is accounting.
Why should you keep your bookkeeping up to date?
There are several reasons why keeping your bookkeeping up to date is important for your business, despite this task rarely being one of the top priorities in day-to-day business activities! We asked our accounting team at Freedom In Numbers to bring together the top six reasons why you should keep your bookkeeping accurate:
1. To get a snapshot of your business finances when you need it
For your business to function correctly, you must keep your financial records up to date. It is crucial for business owners to get a snapshot of their company’s financial health when they need this information. As a business owner, an accurate view of your financial health is not just important for you but is also essential for your wider stakeholders. If your bookkeeping is months outdated and inaccurate, so is your knowledge of the company’s financial position.
2. To meet your tax obligations
Complying with tax laws in the UK is vital; if your bookkeeping is not up to date, you risk having inaccurate records for your income, expenses and all of the other financial transactions your business makes. Keeping your financial records in order can help you to avoid a costly tax penalty or a potential tax audit by HMRC – no business owner wants this to happen! Poor management of your bookkeeping can have an impact on your tax obligations, which would be a real own goal.
3. Improve your cash flow management
Ensuring your bookkeeping is carried out regularly helps you stay on top of your cash flow and identify potential issues before they become significant problems. This includes tracking invoices, payments, and other financial transactions to ensure your business has enough cash to meet your financial requirements. Keeping your books in order helps your company anticipate when having cash in the bank will be needed.
4. Successful planning for the future
All businesses need to make an action plan for their future. Ongoing and correct bookkeeping ensures that your financial data is accurate, which can be used to develop budgets and forecasts. These are tools which assist you, as a business owner, to make better financial decisions and enable you to deal with upcoming challenges, ensuring the longevity of your company. Without up-to-date bookkeeping, you cannot guide your business forward.
5. Make better investment decisions
Sound investment decisions rely on accurate information. You need to know how much cash your business has to invest in its operations. Perhaps you want to expand or open new premises. If your financial data is incorrect, then this will impact your decision-making and harm your business, as you could be investing and spending based on outdated or inaccurate information. This can mean spending money that you don’t have or not using your acquired capital effectively.
6. Secure access to business financing
Maintaining accurate financial records can make obtaining financing from lenders and investors easier for your company. Lenders often require detailed financial statements and bookkeeping records before considering approving a loan, as they must analyse your financial performance to assess their risks when lending you money. Keeping up-to-date financial records can help your business secure the financing you need to grow and thrive. Up-to-date bookkeeping is also considered a sign of good financial hygiene, making you appear a more credible and trustworthy debtor.
”I understand that bookkeeping is essential, but we don’t have the time or capacity to do this properly in-house.”
This is understandable; in the current economic conditions, many firms are already struggling to recruit new staff, and the bandwidth between you and your team will likely be stretched, meaning that you could be struggling to keep your bookkeeping up to date. If this is the case for your business, outsourcing bookkeeping to a professional accounting firm can bring numerous benefits.
By delegating your bookkeeping tasks to a team of experienced professionals, you can free up valuable time and resources, allowing you and your team to focus on the core tasks of running the business. Also, entrusting your bookkeeping to a team of specialists can provide cost savings and efficiency benefits while improving the accuracy of insights into your financial performance.
