Small Business Accounting Advice: Why Is Bookkeeping Important?
Author: Russell SmithOctober 24, 2016
Our bookkeepers from Leeds offer up a bit of advice on why you should never forget about the books.
Bookkeeping is as old as modern man.
Dating back thousands of years, the oldest records of bookkeeping have been found in archaeological digs around ancient Mesopotamia.
National Geographic reported on a fascinating stone tablet, dated at 5,000 years old, that simply read: 29,086 measures barley 37 months Kushim.
It’s a receipt; a staggering example of how even comparatively primitive civilisations to our own undertook bookkeeping as part of business and trade.
Now, this raises an interesting question: Why is bookkeeping important?
It’s a question our bookkeepers from Leeds are regularly asked, and it’s a valid one. If ancient civilisations used bookkeeping, and if the practice has stood the test of time, it must be important to successful business, right?
Organise and Control Your Accounting Practices
The building blocks of business, bookkeeping is the foundation upon which the rest of your accounting practices are built.
Everything from payroll to tax deductions needs a solid bookkeeping base to work from. Without it, you cannot hope to manage your finances.
Imagine a world without bookkeeping, where you ran a business and didn’t record your income and expenses.
- You couldn’t save for tax because you’d have to guess at what your income and deductibles were.
- You couldn’t pay your staff wages representative of your businesses value and income.
- You’d never know how much to put into budgets for advertising, recruitment, etc.
- You couldn’t tell HMRC how much you earned.
- You’d have to manually calculate the value of income and capital, liabilities, assets, etc., every time the information was needed.
The list goes on, and it doesn’t get any prettier.
Access Accurate Financial Data
Bookkeeping may have existed thousands of years ago, but it has evolved a bit since then.
Our bookkeepers from Leeds don’t scrawl notes onto stone tablets anymore; we stopped doing that weeks ago.
Modern bookkeeping offers advanced methods of avoiding mistakes and ensuring you have accurate financial information. Through both custom accounting software, data reconciliation and double-entry bookkeeping, you can keep current and accurate financial books that allow you to get important insights at a glance.
This helps with the following three points.
Swiftly Fill Out Tax Returns
Tax season is a magical, anxiety-inducing time of year.
It’s an occasion shared by all self-employed workers and one you can’t ignore. Filling out tax returns can be a complicated process, made ever more complicated by bad or non-existent bookkeeping.
Bookkeeping is so important to filing tax returns, as it allows you to easily identify and submit your income and expenditure to the government. Without books, you have to pour over receipts and bank statements, hoping you haven’t forgotten anything.
In a process most would like to avoid, bookkeeping helps keep things quick and simple. It also helps you save tax, too, as you can be sure that you have all your available deductibles recorded, optimising your tax relief.
Create Valuable Financial Reports
Have you ever watched Dragon’s Den, where they ask the pitcher about their financial projections and they go ridged? They begrudgingly respond that they don’t have any empirical data and the Dragons quickly remove themselves from the opportunity.
Investors need financial reports to make important decisions on how they want to commit to your business. The better your bookkeeping, the better your reports; the better your reports, the higher your chances are of gaining investors.
It also helps appease current stakeholders, who want to see real, accurate and measurable financial data.
Plan for the Future
Having up-to-date books allows you to not only act on current tasks but also plan for the future.
By evaluating your performance — your incomings and outgoings — you can make changes to optimise your profitability and/or meet financial targets.
For example, you might notice you are overspending on a particular supplier, or that a certain month is proving less profitable and more investment is required in advertising.
Without bookkeeping, you cannot gauge the financial health of your business well enough to make such decisions.