Most of us already utilise a number of systems to keep up with our personal financial records, and some of us are super skilled and organised and use the best systems and processes for keeping our finances in order. But some of us find it particularly difficult to keep up with our personal finances, and this is why financial software can be of great help. But what if you are running a business, and you want to make sure that your finances are in good shape? This is where proper bookkeeping comes in as well. Bookkeeping can be quite complicated, though, so it pays to know all you can about it and make it work for you. Here’s everything you should really know about bookkeeping – and why it’s essential for your business.
What it is
Bookkeeping is the process of recording whatever financial transactions and information you have so you can clearly see where your money is going and what you are earning. For your business enterprise to be a success, you should have the proper balance for your books every month. If not, you may find it increasingly difficult to pay for your expenses, including supplies, stocks, salaries, and taxes. From the beginning of your enterprise, you should set up a good bookkeeping system and process.
Why it’s essential
Bookkeeping is definitely one of the tasks you should prioritise for your business simply because you cannot run your business for long if you don’t have a good awareness of your business finances. For instance, even if you are a small business, you still have to settle various taxes through the year, and with bookkeeping, you can then accurately compute how much you need to pay. You can then also prepare for your yearly financial accounts and think more clearly about your next business decisions, whether it’s investing in a new product or service, developing a marketing campaign, and so on.
If you are self-employed, you still have to file a tax return each year, and this is to declare whatever earnings you have over that period to HMRC. Then you can calculate the amount you should settle for income tax and NI (National Insurance). For you to do this as early and as efficiently as possible, your books need to be properly organised.
The difference between accounting and bookkeeping
Some people may be understandably confused between accounting and bookkeeping – what’s the real difference between the two? Simply put, bookkeeping is the accurate organising and recording of your financial transactions, while accounting can also cover aspects such as regular reports. Financial reports can cover a lot of data for your business, and it includes the analysis and interpretation of your finances over a period. Bookkeeping is more focused on keeping records of your finances and what is coming in or going out, and it can be comprised of your receipts and invoices and expenses. Accounting serves to help you organise this data and helps you make decisions regarding your business so it can grow and become a success.
Proper bookkeeping and accounting take time, and it is better to seek help from a professional for bookkeeping services and your accounting needs. This allows you to focus on your other tasks, and it also eliminates the risk of errors and mistakes, thereby helping you eliminate fines and penalties as well.