Bookkeeping may sound tedious and boring especially for growing small and medium enterprises (SMEs) with a lot of work to focus on, but it is crucial and should not be overlooked.
When done right, managing books can be a lot easier and in fact, it can benefit your business in so many ways. Conversely, poor bookkeeping can have a long turn negative effect on your business.
Why bookkeeping is extremely important
Bookkeeping is not only a way to achieve and maintain compliance with regulations, but also essential for good business practice, e.g. ensuring a good ROI. Here are some of the top reasons why you should implement proper bookkeeping practices for your business.
Your business needs to provide profit and loss information regularly to assess the amount of tax it will have to pay. The information must be correct and presented professionally and concisely. Failure to keep up with your taxes can have serious consequences, for example, the government can impose penalties and fines which can harm your business.
You can claim expenses incurred as business expenses. These expenses need to be paid from the business bank account and ideally should be filed as consistently as once a month. This ensures that the person in charge of bookkeeping can better view and monitor cash outflows for tax purposes.
No matter the size of your business, it is important to keep track of its expenses and that is only possible with accurate financial records. Several businesses have failed due to inaccurate financial records.
Profitability and growth
Accurate bookkeeping is also important for determining the amount of profit your business will generate. This allows you to better understand how much progress you have been making over the years. Bookkeeping gives you the ability to look back in time to identify patterns and make comparisons. Through proper financial analysis, you can learn how to avoid problems and pitfalls in the future.
7 ways to simplify bookkeeping for SMEs
Here are several bookkeeping tips that can make your life as an SME owner so much easier.
1. Record all your transactions
One of the most common problems SMEs experience is that they don't have all the records needed to resolve financial discrepancies. And when this happens, they can end up dealing with compliance violations and penalties.
Therefore, it is crucial to keep financial records properly to avoid complications. And while not every document requires a physical copy, make sure you still have your receipts transaction records properly photographed and filed. This will be your lifeline when you need to double-check your transactions or file your taxes.
2. Automate your bookkeeping work
The easiest way to manage books is by letting an automated system do the work. Accounting software digitally stores and categorizes all your transactions, keeping them organized. Furthermore, it enables you to track expenses, profits and losses, automatically generate financial statements, and more.
Each software program has its own unique features. Talk to your accounting software vendor about what you need so you will get all the solutions tailored to fit your needs.
3. Perform regular audits consistently
Auditing does add work to the process, but when conducted properly, it will save you a lot of pain and headaches in the end. Regular audits will find systematic problems with your books, and when you solve them, you will find that things run more smoothly.
A proper financial audit requires some planning so here are a few steps to do it:
1. Start by gathering your financial documents (which is a lot easier once you've digitized them all).
2. Use your accounting software to review the numbers and find any discrepancies.
3. Check your tax records to see how the numbers have changed over time.
Remember to make sure only the right people have access to all this data, and they will be directly responsible for any problems you might find.
4. Try accrual accounting
If you are currently using the cash accounting method, it may be a good time to consider accrual accounting. Accrual accounting is the practice of recording revenue and expenses when transactions occur, not when payments are received or made.
Therefore, there is no lag between spending and paying, or making a sale and receiving payment. A practical example is inputting invoices into your accounting system when you receive them, even if you don't plan to pay them until they are due.
Accrual accounting builds a more accurate picture of how your business is doing (however, you should know your cash flow to make sure you're not overestimating your ability to make payments) and is often the accounting method most small and medium businesses should use.
5. Take action on your accounts receivables
In some cases, you will make a sale without first collecting cash upfront. If you have delivered services but have not received payments yet, that means you have accounts receivables.
Your outstanding accounts receivables need to be tracked otherwise they can negatively affect your cash flow. Therefore, it is important to establish payment terms with your customers so they know when to pay up.
6. Reconcile your bank statements
At the end of each month, count the total of your business transactions to ensure that the amounts reflected on your accounting records and your bank statements are the same. Bank reconciliation allows you to manage your company’s cash and keep your accounts in check. It is a good practice to balance your books after each transaction.
With advanced accounting software, bank reconciliation can be done automatically and human errors can be minimized, thus ensuring more accuracy.
7. Keep up with your compliance & obligations
When you do the bookkeeping yourself, you need to make sure you don't miss important payment deadlines and government filings. Missing deadlines can result in painful penalties.
However, If you don't have the time to prepare your statutory accounts, it is best to consider outsourcing your bookkeeping work. This will help free up your time and give you a better focus on your business growth.
You've been armed with a few tips and you should be ready to take on bookkeeping yourself. Take the next step and gain some insider knowledge on doing bookkeeping like a pro!
A fully automated accounting solution can be a perfect choice to set you free from manual bookkeeping and other accounting processes. If you want to learn more about accounting software, kindly refer to this page and feel free to contact us.