Are you wondering what the importance of bookkeeping is? You may be an expert at running your business, getting new sales and dealing with suppliers. Some small businesses do not see the importance of bookkeeping and leave it all to the last minute.
It is important to keep your bookkeeping up to date. There may be times during the year when you need to know the figures and the position of your business, but the figures are not available. It may delay receiving payments, making payments, applying for a loan or getting credit from a supplier.
The accounting reports you require will depend on the size of your business. A small business may only require a profit and Loss and Balance Sheet. Larger businesses will need forecasting, debtors, credits, profit and loss and Balance Sheet to name but a few.
If the bookkeeping is up to date and you are using a good accounting system, you will be able to get reports instantly. It is important to see the position of the business. Have you got enough money to pay outstanding invoices? Who owes you money? How much do you owe suppliers? If your bookkeeping is not up to date, it can be easy to miss a customer that owes money.
By having your correct bookkeeping figures, you can plan. You can produce cash flow forecasts, which will help you to review the plans for the business. There may be times when cash is tight and financial plans need to be put in place. Perhaps you are looking to expand the business, producing the reports will enable you to decide the best time.
There are many different business taxes it doesn’t matter if you run a limited company or self-employed. Ensuring you have enough money to pay for taxes is important. By providing your financial figures, you can calculate the taxes that need paying.
Importance of Bookkeeping – Required by Law
All business are required to keep financial records by law. Most businesses need to keep records for six years. When providing figures to Companies House or HMRC, you will need to keep backup records as well. These can be either paper or electronic records. HMRC may carry an inspection of the records.
When all your bookkeeping is complete, the figures can be used for financial analysis. Financial analysis is used to see how well the business is performing during a period.
How often should I complete Bookkeeping?
It will depend on the size of business you run. It is normally better to complete bookkeeping little and often. It makes it easier when you need the reports and figures. It is important to get at least your sales invoices sent on time.
To help with bookkeeping on a regular basis, a good accounting software is recommended. If you are self-employed QuickBooks and Xero, both offer excellent software that can be used on your mobile device.