Bookkeeping is a bit like the difference between maths and art in school. Some people are good at one, with others preferring the opposite, and the two rarely meet. I know that was certainly the case for me anyway! Among most home business owners, finding creative ways to grow is the art, and bookkeeping falls into the dreaded maths category.
Of course, some people love both and derive equal pleasure from number crunching and business creation. For most of us, though, bookkeeping is a task we’d rather not have to get involved in. Keeping accurate financial records is a legal must, but it’s also a window that shines light on ways to increase profits, and can give insights that mean slumps don’t turn into catastrophes. Want to find out how? I’ll tell you…
A Watchful Eye on Cash Flow
Without careful and constant monitoring, cash flow can suffer under the familiar ‘feast or famine’ cycle many small business owners go through. There are periods of buoyancy when plenty of sales and money flows comfortably in and out. At other times the inward flow doesn’t quite keep up with outgoings. The only way to even things out is through constant, daily, monitoring and the foresight that comes with a clear financial history you can look back on to spot potential income droughts.
Bookkeepers, in this respect, are the gatekeepers. They get to thoroughly know your business, will take care of payments (within limits you can set between you), deal with invoices, balance and consolidate ledgers and run your petty cash account. Over time, the full picture of the ebb and flow of finances means they can predict potential slumps and offer advice that helps the business navigate safely around or through them.
Reduce the Chance of Burnout
Running a business is a demanding undertaking. When you’re acting as your own bookkeeper this can mean spending an hour or two in the evening when the working day is supposedly finished. Constantly working long hours rapidly leads to burnout which in turn will rob you of creative energy. Unless you’re the type who relishes balancing columns of figures on a daily basis, bookkeeping will take a load off your mind and off your workload.
Aside from the mental benefits, professionally kept books:
- Make the annual tax return very much easier to compile so you save money on accountancy fees.
- Can reduce your tax bill as you can make sure you’re claiming all your allowable deductions.
- Keep you compliant with legal requirements, with records you can present to tax inspectors any time they come calling.
Far from being an expense you can’t recoup, bookkeeping services can quickly pay for themselves, unlike other costs of doing business. Full time help may not be necessary. Hire a bookkeeper for a couple of hours a week to start with, then gradually increase the time when needed as the business grows.
A common bookkeeping mistake is to have your accountant also take care of bookkeeping tasks. The general assumption that accountants must also do your bookkeeping can lead you to try and keep your own books to save on accountancy fees.
In fact, bookkeepers and accountants perform distinct functions that complement each other but are separate. Bookkeeping is normally less expensive than accountancy, so you could reduce your accountant’s bill by having a bookkeeper take care of the daily stuff. At the end of the financial year, your books are up-to-date and ready for your accountant, who will take a more holistic view of the business’s financial health and prepare your tax return from the figures your bookkeeper compiled.
Professionally kept financial records offer a wealth of information you can use to improve business strategies, find new avenues of profit generation and make funding for expansion easier to secure. Your books are the pulse of your business. When they’re strong and complete, business has a solid foundation and can grow with confidence. Let me know your experiences of keeping your own books or using financial services in the comments below.