Why are Quality Bookkeeping and Accounting Key to Business Success
Henry Ford once said, "It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages."
Bookkeeping and accounting are the lifeblood of any successful business. They provide financial stability, help businesses set and reach their goals, and make sure that taxes are paid on time, to mention a few.
Without them, a business will struggle to stay afloat.
With that in mind, we've tailored this article to walk you through the difference between accounting and bookkeeping and why they are key to your business success.
Ultimately, we hope to help you get a clear picture of how to take actionable steps regarding your business accounting and bookkeeping going forward.
Without further adieu, let's jump right into it, shall we?
What is bookkeeping? An in depth look
Bookkeeping is the process of recording financial transactions such as sales, purchases, receipts and payments. Bookkeeping helps businesses track their income and expenses and ensure accurate information is available for decision making.
It is an important component of any successful business. Without bookkeeping, a company would not have a clear view of its financial health.
Highlighted below is a clear picture of what it involves:
Recording financial transactions
Preparation of financial statements
Posting debits and credits
Maintaining and balancing historical accounts, general ledgers, and subsidiaries
Maintaining an accurate general ledger is a crucial component involved with bookkeeping. Your general ledger is the primary document bookkeepers use to record sales and expenses based on receipts. The process is called posting.
The more sales are made, the more often the ledger is posted. You can create ledgers using software, a spreadsheet on your computer, or a simple lined sheet of paper.
The complexity of bookkeeping systems usually depends on the business size and the total number of transactions done monthly, weekly, and daily. Every sale and purchase your business makes must be recorded in your ledger, and some items require you to provide additional documentation.
The IRS informs you about the business transactions requiring you to submit additional documentation via their website.
Bookkeeper credentials: what's needed and why?
When thinking about "what a bookkeeper is," an important aspect is their education or credentials.
In most situations, bookkeepers don't have to have any formal education. However, being successful in this role requires the individual to be knowledgeable about important financial topics and dedicated to high levels of accuracy.
The bookkeeper is overseen by the company's owner or accountant in most businesses. And this is the valid reason why bookkeepers can't call themselves accountants.
The importance of bookkeeping for your business
If you're unsure if bookkeeping is needed for your business, keep reading. Here, you'll learn about the specific benefits of professional bookkeeping services.
1. Help with accurate budgeting
Bookkeeping is an important part of any business because it makes budgeting easier. With your expenses and income organised well, reviewing your costs and resources is easy.
Your budget is your business's financial roadmap. When you establish a budget, you can plan for future expenses for your business, which will help with ongoing growth and success.
However, if your books are not updated, developing an accurate budget becomes more difficult because you'll make assumptions the entire time.
2. Ensure you're prepared for tax season
While it may be annoying, many businesses must file their taxes at the end of the year. If you ensure proper bookkeeping throughout the year, your financial information will be ready for tax season, and you don't have to worry about the IRS hounding you.
3. Ensures organised records
Do you want to deal with the last-minute stresses of locating essential business information? This can lead to errors, missed deadlines, and other issues.
Regardless of your business size, you can't afford to make mistakes. Bookkeeping regularly can prevent these issues.
It's imperative to make it a habit to update your books regularly. You don't have to leave this for the last minute. By doing this, you can remain organised. In addition, as time passes, it will make finding the information you need much easier.
4. Easier to recognise and meet business targets
If you own a startup, you want it to grow. However, if you don't keep up with your financial records well, this may prevent this from happening at the desired speed.
The main reason this is the case is that you will be guessing at everything. Because of this, you will likely be disappointed that you did not hit your prior targets.
However, when you stay on top of your bookkeeping and update financial records often, it's possible to map out your goals and achieve growth accurately.
5. Meet government regulations
The government is developing new initiatives all the time. But these goals are to make things easier for them, not you. One of the most recent is the MTD – Making Tax Digital – an initiative where the government expects businesses to comply.
With this, your business must do taxes digitally using software and applications. You must do your books and have a tool like Accounting Cloud to handle your taxes.
If you use a professional tool, the process becomes a lot easier. It can also help you avoid penalties and keep you from outsourcing your bookkeeping needs.
6. Peace of mind
If your books are unorganised and tax deadlines are coming up, it can cause stress and panic. If you own a business, the last thing you want to deal with is bookkeeping tasks that are months behind.
When your books are complete and organised, you don't have to worry about them stressing you out. Instead, you can focus on other parts of your business and know that at least this element is taken care of.
Tips for hiring a bookkeeper for your business
Now that you know the answer to "what bookkeeping is all about," it's time to learn how to find the right one for your business. You can hire a freelancer, a firm, or a remote bookkeeping service.
This isn't the case for companies with over 30 employees and £1 million in revenue annually. So at this point, hiring someone in house makes the most sense.
This is the most affordable option. It is preferable if you have a limited budget. If you hire a local freelancer, they can come to your business to collect and organise your documents. If you work from home, then you can hire a freelancer online.
One of the most significant drawbacks of working with freelancers is that they usually work on their schedule. This could leave you in a jam if you need something done quickly and they aren't available.
Working with a firm
It is usually more expensive to hire a firm, but someone is always there to help you when you need any help.
Many modern firms work remotely with clients, so it is a good idea to find a firm that uses the same bookkeeping software as you. This can help ensure seamless service.
Remote bookkeeping solutions
Online bookkeeping solutions typically use cloud based software to connect you with an experienced team of bookkeepers. These individuals handle your books for you. The service is similar to a firm but usually more affordable.
What is accounting? An in-depth look
Accounting is a financial practice that involves recording, classifying, and summarising the financial data of a business.
We can also refer to it as a higher-level process that uses the financial data gathered by bookkeepers or business owners and then produces financial models.
It helps to track the inflows and outflows of money, helping businesses make informed decisions about their finances. Accounting is more subjective than what you do in bookkeeping, which is mainly transactional.
Some of the aspects of accounting include:
Preparing the adjusting entries
Helping the business owner understand the impact of different financial decisions
Handling income tax returns
Analysing operation costs
Reviewing the company's financial statements
One of the essential parts of the accounting process is to analyse the financial reports, which help you make a business decision.
This results in a better understanding of your business's profitability and provides you with information about the business's cash flow.
Accounting will turn the information located on the general ledger into insights that provide the "bigger picture" of the business and what path your company is progressing down.
Business owners often work with accountants to help with tax filing, forecasting, analysing the business's financial position, and strategic tax planning.
To be an accountant, you must have a bachelor's degree in accounting (in most cases).
That said, a finance degree may be a suitable alternative if you don't have a degree in accounting. Accountants can also acquire other professional certifications, unlike bookkeepers.
For example, with adequate experience and proper education, accountants can work to become a CPA or Certified Public Accountant title.
To earn the CPA title, the accountant must pass the Uniform Certified Public Accountant exam and have experience working as a professional accountant.
The importance of accounting for your business
Accounting plays a huge role in running your business. It helps track expenditures and income, make sure you are compliant, and provide the government, management, and investors with quantitative financial information that is then used to help guide business decisions.
Some of the top reasons it is imperative to invest in accounting for your business include:
1. Help evaluate business performance
Your business's financial records reflect your business's operating results and financial position. Therefore, they help you understand the financial state of your business.
Having clean, accurate, and updated records will help you keep track of gross margin, expenses, and debt. Still, it allows you to compare your existing data with prior periods to properly allocate your budget.
2. Ensures statutory compliance
Regulations and laws vary from state to state, but with proper accounting processes and systems, you can feel confident your business will maintain statutory compliance.
Accounting ensures liabilities like pension funds, income tax, VAT, and sales tax (to name a few), are handled as needed.
3. Create a budget for future projections
Future projections and budgeting can make or break your business. Your financial records will play a huge role when it comes to this.
Business projections and trends are based on your historical financial data. They are needed to help ensure your business remains profitable.
The financial data is most reliable and accurate when provided with a robust and structured accounting process.
4. Helps with filing financial statements
Businesses must file their financial statements as required by law. And, the listed entities must file them with the stock exchanges for indirect and direct tax filing purposes. It should be clear that your accounting practices play a huge role in these situations.
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The cost of hiring an accountant
Some accountants will charge by the hour, and others will work on a retainer fee paid monthly.
As a result, the service cost can vary quite a bit from one accountant to another. It all depends on the level and type of service the accountant provides.
Be sure to discuss costs at your initial meeting. This will give you an idea of how often you will meet with the accountant, which will also impact the cost.
When to hire a bookkeeper or accountant
It can be challenging to figure out when to hire a bookkeeper or accounting professional. You may even wonder if you need one at all.
While some small businesses only use accountants as consultants, you have more than a few options regarding handling different bookkeeping tasks.
For example, you may want to handle bookkeeping tasks in-house. You can discuss what software to use with your accountant and provide them with the necessary information.
Be sure to consider what makes the most sense for your business's needs. Hiring these professionals means you will have time to focus on core operations rather than bookkeeping and accounting tasks.
To sum up
Quality bookkeeping and accounting are both critical to the success of any business.
While startups always tend to cut costs by handling their bookkeeping in-house, it is unethical and inefficient to cut corners when it comes to quality bookkeeping and accounting.
In today's digital age, several options are available for businesses in need of quality bookkeeping and accounting services in the UK.
Accounting Cloud is one such platform that provides reliable and cost-effective solutions for businesses looking to handle their bookkeeping and accounting needs.
With this expert-vetted software, Accounting Cloud makes it easy for businesses to manage their financial operations quickly and securely.
Why wait? Try out Accounting Cloud now to take your business to the next level, and don’t forget to take advantage of our School of startups, where you’ll find resources that can help you grow your business.
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