Accounting software giants, XERO’s most recent report found that of the businesses that failed within the first five years, 65% of them cited financial issues as the reason for closing down  so keeping your books in good shape will not only make you compliant but will also help you to run your business more effectively.
Get the right bookkeeping system for your business
Basic accounting and bookkeeping software is low-cost and fairly easy to use so unless your business processes add up to less than ten transactions per month, accounting software will almost certainly reduce admin time, minimise errors and provide a solid financial platform to manage your business on a day to day basis.
“The beauty of bookkeeping software is that you only have to enter a small amount of information and it will calculate the rest for you. If you input invoice details it will update various sections of your bookkeeping records, once you’ve mastered the basics of the software, then you will find that bookkeeping can be very simple to do.” says Clive
Be clear about what you need the software to do for you and your business – it must enable you to meet your legal tax and accounting obligations at the very least. When choosing software for your books there are a number of things that you may want to consider before you commit to buying one:
- What are your business objectives?
Look for a software application that can help you to gain insight into your future objective
- Who will be using the software?
Whoever is using the software needs a say in which one you choose, you should consider the usability of the software in relation to the person who will have control of it
- What management information can it provide?
Accounting software can provide additional information beside bank account transactions. For example if you’re a retailer then you may want software that can provide you with updated stock information
- Can it handle all of the things that you need it to do?
For example, do you have more than one business that you need to run through the system or do you need it to include VAT or payroll software? Can it import and export data for you?
- Can you use the software anywhere?
Do you access your accounts from home or do you need them on a cloud based server for when you’re on the move? Do you need a mobile version?
Update your books regularly
Keeping up to date and accurate accounting records is more than a legal requirement. It’s key to keeping track of your expenses and income and understanding where your business stands financially.
Although there is a temptation to use working hours to maximise profit opportunities, you should be allocating a specific amount of work time to keeping your books – and therefore your cash flow – up to date and healthy.
“It’s a common mistake that business owners make when they think about doing bookkeeping in the evenings or over the weekend. If something happens and you forget, you will soon have a pile of transactions that you’ll need to get up to date.” says Clive.
A recent KPMG study found that on average small businesses are using financial information that is four months out of date . If you have transactions in and out of the business every day then you should be keeping weekly updates – at the least - on your books and putting a set amount of time aside to do this.
“It’s also important to keep a note of your bank account balance on a regular basis, even more frequently than once a week in most cases. You should know exactly what your bank balance is today and how it will change over the next few months.”
Failure to keep books up to date means that it’s impossible to a run a business for maximum profit or to make truly informed decisions about things like investments.
Use the data in your accounts to understand your business
Cash is the lifeblood of any business and having an understanding of how it flows in and out of yours is essential for success.
Financial reports and forecasts are detailed documents that allow you to monitor and predict your finances and are extremely useful for any size business. Having the ability to plan financial matters effectively can help your business grow and adapt to a changing economic environment. It can also help you to:
- Plan out how much you expect to make in sales in the next month, quarter, year
- Plan how much you expect to spend in costs
- Understand when cash will come into and leave your bank account
You need to be disciplined and regimented in your forecasting; Clive explains that if your reports are robust then your business will be fit and able to deal with any financial challenges or changes in the future,
“You should be able to look at your cash flow to forecast when you will be paid and what payments you need to make in order to anticipate what your bank balance will look like in the future. For example, if you need to pay staff wages at the end of the month then you can see how much leeway you have in advance so you don’t run into problems when it comes to pay date.”
Your forecast also gives you an opportunity to predict new scenarios for your business and how they will affect your finances, for example, if you wanted to take on a new member of staff or start offering a new product or service.
Hiring a bookkeeper
Various tasks such as dealing with invoices, recording expenses, monitoring outgoings and paying employees can be very time consuming. If you have the expenditure then it could be worth considering hiring a bookkeeper or an accountant.
“A bookkeeper or accountant will have expertise in writing up records and that means that they tend to be able to sort your books much faster and more efficiently. It also allows you as a business owner to concentrate more time on your day-to-day jobs.” says Clive
A bookkeeper will look at your day-to-day finances and can bring your accounts up to a high standard of detail and accuracy. With such insight into your finances, they can also advise you on issues that may affect you in the future and how best to move forward.
On the other hand, accountants can work on a monthly, quarterly or annual basis looking at the financial records that your business has already created. They will make any adjustments required and will use the information in your accounts to file your end of year tax return and other official reports.
Finding the right bookkeeper
When choosing a bookkeeper, you need to ask yourself what you and your business will need from them. Some bookkeepers may specialise in your sector which means that they may have a deeper knowledge of finance within your industry.
“It’s very important to understand what a bookkeeper or accountant will and won’t do when it comes to your finances. Some will be able to do everything for you including bank reconciliation, chasing debtors and writing out payments for you. It is important to establish how they can help you from the outset.” adds Clive.
It’s important to take the time to choose a bookkeeper as it’s in your companies best interests to have a trustworthy, experienced and capable person to handle your finances. You should consider things like:
- Do you want someone chartered or accredited?
- Do they have experience in your industry?
- What software do they use? – does the software suit your business needs
- What are the fees?
- Where are they based? – do you need face-to-face interaction or are you happy to collaborate over the phone, via email etc
Tip: If hiring a bookkeeper or accountant, you should take up references from existing or past clients.