The importance of understanding and knowing what your business finances are is fundamental to ensuring that your business grows successfully and runs smoothly.
I learned the invaluable lesson of keeping current with my business finances while managing Archway Books, my bookshop chain throughout northern England. It took just a couple of minutes every day to cash up and enter the totals into my spreadsheet. Doing this meant I knew at all times how my sales were doing in all my shops. I was able to compare the figures with the previous year, month, or week, and it also helped with cash flow and moving my business forward. I also made sure I sent my invoices out on time and chased down late payments before purchasing more books. Accurate bank reconciliation, along with taking these steps, was key to the smooth operation of my bookshops.
Since I like working with numbers, it was not a burden for me to do my own bookkeeping. I understand that is not true for most people. When you were setting up your business, it is very likely that you were focused on aspects other than bookkeeping, and maintaining accurate records was not a top priority for you.
Why is it so important?
Like with other important aspects of operating your business (like marketing, customer sales, technology, and sales), good bookkeeping is key to the smooth operations of a growing business. So it is something that you should definitely not avoid.
It is always possible in investing time in learning all of the various aspects that are necessary to ensure that your bookkeeping is effective. It can be a time-consuming process, so you might want to consider outsourcing your bookkeeping to a specialist. When you are considering outsourcing costs like bookkeeping for your business, it is essential to consider the value that it can bring above the actual cost. For example, peace of mind and being able to sleep soundly at night, freeing more time up to focus on doing the things that you do best for your business, covering deadlines, and knowing that your business finances are being watched carefully by a professional.
Bookkeeping has recently become highly automated and there is an extensive choice of reports that are available. This can help you understand your business's financial position better. However, do you make the most of your reports? Do you know what a Profit and Loss report is, as opposed to a Balance Sheet or Statement of Financial Position? Do you understand that over time your assets depreciate in value? There are also financial terms that you need to be familiar with and the entire process can appear to be overwhelming.
When you keep up with your finances, you can avoid having to pay penalties for making late accounting submissions as well as help with your cash flow by having access to and being knowledgeable of your accounts that are up to date. I feel this is a very important point. I have noticed that many businesses wait and have their accountant complete their accounts once per year. However, ideally, your finances need to be kept in order and checked a lot more frequently than that, by either your bookkeeper or you. When you watch your accounts closely, it allows you to closely monitor numerous key indicators of your business, ranging from your expected turnover to your net and gross profit as well as profit margins to better plan your cash flow.