What is bookkeeping and 8 reasons why is it important to grow a successful business
There’s been many times I’ve heard: “I hate doing my accounts”. It’s the admin task that seems to get pushed to the bottom of the to-do list and inevitably stay there for weeks on end.
I believe if business owners used their accounts properly, it can be exciting to do your accounts – especially when you see how much profit you’re making!
However, to understand this properly, we need to understand what bookkeeping or ‘doing your accounts’ means, and then understand how it can help you to grow a successful business.
What is Bookkeeping?
Bookkeeping is keeping track of everything that goes through your business in regards to money. That includes sales of goods and services – so the income you receive – and the money you pay out for expenses and bills. Find out more in our What is Bookkeeping? post.
So why is bookkeeping important?
1. Tracking expenses – where to spend and save
You can see exactly where you’re spending your money, which is crucial when it comes to building a successful business. It stops trial subscriptions becoming a monthly fee that you didn’t notice until you’d paid multiple times, for example.
2. Business Decisions in real time
You can make important business decisions. You may be an electrician and want to buy a new van, for example. If your bookkeeping is up-to-date, you can see what options are available for purchasing the new van. Similarly, if you want to take on a member of staff, you will be able to make a calculated decision.
3. Ways to use your finances to negotiate
It helps you build relationships and negotiate with suppliers. You can say you have spent £1,000 with them in the last 6 months, and from there you can explore options for discount, bulk buying, and opening a trade account.
4. Legals and financial responsibilities
It stops you being a chaotic mess when it comes to submitting your self assessment or year-end accounts!
5. Accessing funding
If you ever want to access funding, such as investment, grants or loans, then those types of organisations will expect you to know your finances. Regular bookkeeping can really help you with your application, and – most importantly – inform you as to what cash-flow issues you may have.
6. Paying on Time
It stops you making errors or being late with payments. If you don’t input your paperwork, you can’t keep track of what is owed – it’s not unusual for businesses to pay bills twice in error, or be on stop from their suppliers. This can be avoided if you do your accounts regularly.
7. Keeping the taxman happy
You will know exactly how much tax you owe! If you’re VAT registered, you will know ahead of your VAT return how much is owed – meaning no nasty surprises!
8. Trends and Seasonal Changes
You will be able to see how your income is affected throughout the year. For example, your income may change depending on the season, so you will be able to make decisions based on this information.
There are many other reasons I could add here, but hopefully this gives you an overview to start with. So now you know why it’s important to keep your bookkeeping up-to-date, be sure to sign up to my newsletters (see the box below!) for tips, tricks and more info on bookkeeping.