What is Book-Keeping & why is it important?
What is a book-keeper?
There’s a number of different taxes small businesses need to pay throughout the year, and book-keeping means you can correctly calculate how much is due. This helps you prepare for the financial year ahead and allows you to think about what your next moves are, whether that’s growing your business or setting up a limited company.
Book-keeping is the process of recording your business transactions so you know exactly how much you’re spending and what you are spending it on.
Already have an accountant? You will still need to keep on top of your book-keeping, such as getting your invoices out and recording your expenses, as they simply can’t do their job without knowing your income and outgoings.
We actually record everything using online accounting software, and we pride ourselves on a paperless service.
When your book-keeping is in good shape, your accountant can help you with things like making tax-efficient decisions such as how much to pay yourself, what business structure is right for you, and when you should register for VAT.
It’s also worth remembering that if you dream of expanding your business, you’ll need to be able to prove its profitability to investors, new partners, and banks. Good book-keeping practices can help you with this.
To make life easier, I have listed some ways below on how to stay on top of your book-keeping…
- Choose your book-keeping method
- Set up your general ledger
- Create your business accounts
- Record every financial transaction
- Balance the books
- Prepare financial reports
- Create a book-keeping schedule
- Store records securely
Whether you do it yourself or outsource your book-keeping tasks to someone else, it is always good to understand the basics so you know exactly where and how your money is being spent.
What is bank reconciliation?
Bank reconciliation is a way to double-check your bookkeeping. You do it by comparing your business accounts against your bank statements. Both sets of records should agree with each other. If not, you need to figure out why.
The purpose of bank reconciliation
Bank statements are reliably accurate financial records. By checking your books against them you can:
- Find and fix errors: You’ll spot your bookkeeping mistakes and clean them up
- Catch wrongful payments and fraud: Reviewing expenses is a good way to spot incorrect payments or suspicious activity
- See how the business is doing (rather than guess): A regularly verified set of numbers keeps you in tune with financial performance
- Get tax breaks: You can classify tax-deductible expenses while doing your bank rec
- Be prepared for filing taxes: You need a fully reconciled record of business income and expenditure to do tax returns
- Track profitability: Use the opportunity to assign expenses to jobs and see how much money they really made you
Mistakes to avoid…
However, If you are going to do your own book-keeping, here are some mistakes to avoid…
Get a separate bank account for your business – this is going to make your life so much easier. Rather than going through hundreds of transactions that may be personal as well as business, you will have all of your business transactions all in one place.
Not taking your book-keeping seriously – while book-keeping is mainly done for tax purposes and HMRC, it also helps you to budget, helps you assess your business performance and helps you identify your strengths and weaknesses and it helps you plan for your future!
Not keeping digital receipts – rather than having paper receipts that can easily be lost and may lose their ink, having digital receipts is the best way to keep track of your expenses. After all, you do need to keep them for 6 years and having a stash of paper receipts will take some time to go through!
It may be time to hire a book-keeper. Here are ways a book-keeper can actually add value to your business…
- They can save you time
- You won’t miss unpaid invoices
- They will pick up any cash flow issues
- You can focus on growing your business
- You will be prepared for an audit
Does any of this resonate with you or your business? Book in a call with Lucy below, at a time that suits you.