A critical part of running a business is being able to understand and deal with the company’s financial situation and net income or loss. Without this info, it’s impossible for managers to run a business efficiently and effectively. Not to mention that it’s difficult for stakeholders to make good decisions about strategy and day-to-day operations.
Bookkeeping helps you prepare for tax returns, do a budget for your business, and keep your finances organized. If you are determined to keep your finances in check and make sure HMRC doesn’t cause you problems, this is a topic for you. Here are some reasons why bookkeeping is a must for your company. Let’s start!
Accurate Financial Reports
Financial reports are crucial for ownership and executive leadership. This includes important elements, such as the income statement (details expenses, revenue, and net income), balance sheet (illustrates capital structure, assets, and liabilities), and cash flow statement (delineates financing, operational, and investing cash inflows and outflows). All this important information comes from a general ledger system that is mostly updated by the bookkeeping process.
Don’t forget that we are living in some extraordinary times that affect every business, especially small ones. Bookkeeping advisors at Digit suggest taking the COVID-19 pandemic into account when trying to understand how to make good decisions in a rapidly changing world. Make sure you are clear on your cash flow forecast and collect valid information. Explore all the new challenges and make the best of them.
If your financial reports are accurate it allows you to make your strategic decision with confidence. Not to mention that good bookkeeping often helps businesses stay alive. When it happens that there isn’t enough money to meet the obligations or make payroll, you, as an owner, must know about it and take steps to correct it.
This is just one of the reasons accurate reporting is crucial. If you know about the crises in time, your management will have a chance to react until it’s too late. This is particularly true when it comes to cash flow and capital structure. Unfortunately, too much debt and high payments can have disastrous consequences for your business, and bookkeepers are there to track the issues.
Managing Payables
One of the many things a bookkeeper can do is to create accounts payable reports that will illustrate the amount of money your business owes to third-parties. If your company doesn’t have enough to repay its payables in time, it may likely need another source of capital or debt financing. Payables must be managed in a very specific way. A company must not run out of working capital, but at the same time, it shouldn’t miss crucial obligations that can impact long-term success.
You can also automate these processes. By doing so you’ll have a more safe, error free and a paperless accounts payable and receivable operation.
Managing Receivables
When your business is short on cash, keeping on top of the debt owed is extremely important. Bookkeepers are there to generate accounts receivable reports that often give details about the aging of accounts receivable. This gives managers the potential for collectability and helps them with cash inflows.
In other words, without bookkeepers, it would be almost impossible to track receivables, especially without closing off receivables in the larger system and the deposit of checks in banks.
Meeting Government Regulations
The government often comes with new initiatives which, most of the time, make things easier for them. The most recent one is the MTD (Making Tax Digital) initiative and all businesses are expected to comply. To put it more simply, companies will have to start doing their taxes digitally, by using software and applications. This means that you won’t need to do your books only, but you will also have to use an app for it.
In this case, it’s very important to choose an easy-to-use app to make the process simple. The good thing is that this will stop you from wasting money on outsourcing your books and facing any penalties.
Maintaining Organized Records
If you want to avoid the stress of trying to find important business information at the last minute, bookkeeping is the answer for you. Always try to do your best and don’t miss deadlines or allow small errors to creep through. You can’t afford to make mistakes and bookkeeping can really help you with that.
As you can tell from this article, bookkeeping is essential for your company for many reasons. Sure, not everyone is an expert when it comes to it, but it’s much easier than you think to start and keep going. This simple guide will help you on that journey. Make sure you do your research, create a checklist, and consult the professionals. You will see how proper bookkeeping will make a difference in your business in no time! Good luck!
