Bookkeeping: What You Need to Know to Run Your Business
Written by Paul Gordon at 720 Digital
Small business owners are used to wearing many different hats within their company. One day they’ll be managing recruitment and the next they’ll be focused on customer service. As your business grows, you might dream of the day when you can hire someone to handle everything else for you, but until that day comes, you’re going to have to continue being a jack of all trades.
Bookkeeping is one area that small business owners often stumble. However, it’s vital to the future of your company that you keep accurate financial records. Not only can it help you to identify ways you could be saving money, but it can also have a negative impact on your tax liability if you don’t keep accurate records. Bookkeeping is something that everyone can learn, even if you think you don’t have a head for numbers. A simple bookkeeping course will bring you up to speed. If you’re up to the challenge, these are the main things you need to learn to manage your own bookkeeping.
Sending and chasing invoices
Before starting any new working relationship with another company, it’s important to make sure that both sides agree to the accounting terms. This will prevent you from issuing an invoice with 30 day payment terms when the other company assumes they have 90 days to pay. Keeping track of invoices in this way is essential as this could be a huge source of cash flow for your company. If invoices aren’t paid on time, someone needs to take responsibility for chasing them.
Keep track of daily transactions
Bookkeeping is done on a daily basis. You can’t keep track of your transactions on a monthly basis. Instead, you need to be able to account for every single day in a financial year. This will include money going into your business account in addition to money going out. The role of the bookkeeper is to be stringent with these tasks as this is the only way you can prepare accurate accounts.
Understanding cash flow
You might have a broad understanding of how your business is doing, but a bookkeeper will have a much more granular view. A business cannot operate without cash on a day-to-day basis. Ensuring you have a good understanding of your cash flow is essential for business success. Basically, someone needs to keep an eye on your cash flow, and if you’re acting as the bookkeeper, that person should be you.
Preparing the books
As the tax year comes to a close, you will need to prepare your tax return if you are a sole trader. If you’re running a limited company, you will need to prepare your books for your accountant. Using accounting software will make this easier, but you still need to know how to make sense of the numbers in front of you. Preparing an accurate tax return is essential if you want to avoid a fine for late filing or inaccuracies.
Keep track of inventory
If you run a service, then you can ignore this step. However, if you run a shop, you need to keep track of your inventory as this needs to be accounted for in your bookkeeping. Keeping track of inventory is not only essential for your accounts, but it also helps you to ensure you don’t run out of stock. You will need to decide the minimum volume of inventory to keep in stock. If you run an online shop, you’ll also need postage and packaging supplies. You also need to find a way to account for inventory shrinkage in your bookkeeping.