A question we regularly get asked is: how often should I do my bookkeeping?
The answer, however, is dependent upon what you want to use your bookkeeping for.
Typically, business owners who do their bookkeeping once a quarter or once a year are doing so purely to make HMRC and Companies House happy.
In our experience, we’ve discovered this means the bookkeeping becomes detached from the day to day systems within your business. It is simply the data entry of historical transactions for tax purposes.
Here at Fresh Financials, we know what wonderful things regular bookkeeping can do for your business, so that makes us a little bit sad.
So, here are some great reasons to ditch the spreadsheets and embrace technology and daily bookkeeping.
It will give you a clearer idea of how your business is performing
Doing your bookkeeping once every quarter will mean that for a three-month period, your purchase invoices and expenses will be piling up on your desk. Aside from taking up space, this paperwork will be bringing no value to your business at all.
When there isn’t an accurate and efficient bookkeeping system in place, we’ve found that business owners will typically gauge their business’s success upon their bank balance. This is often referred to as bank balance accounting.
The problem with relying upon your bank balance is that it is merely a snapshot of the cash reserves at the time of checking. It doesn’t mean that that cash is unallocated. Or whether there is enough to cover what might be withdrawn tomorrow or later that day.
If you are relying upon your bank balance, then you are running your business blind.
Investing in regular and accurate bookkeeping will give you a real-time knowledge of what is going on within your business. You can generate profit and loss reports on a whim to see where your money is going and whether your margins are on track.
This gives you the time to adjust your spending or pricing before there is a negative impact on your business. It means you can monitor your business against budgets and forecasts.
It will move your bookkeeping away from purely being a tax calculation exercise.
It will help to keep your customers and suppliers happy
We all know how horrible it feels when a customer doesn’t pay.
Most of us will have also experienced the panic when a large bill is due for payment and our bank account says no.
If you do not do regular bookkeeping, then you may run a separate paper-based system to monitor your credit control. Or you may simply leave it until your suppliers begin to send you reminders.
Doing this will mean that you are letting go of some of your control around cash flow and every time you are delayed or unable to pay, you are damaging your relationship with your suppliers.
You may also be surprised to know that during our bookkeeping Health Checks, it’s not uncommon for us to find unpaid sales invoices that have fallen under the radar. This is money that business owners have earnt and are owed but have simply walked away from.
Daily bookkeeping will mean that you always know who owes you money and will enable you to run an efficient credit control system. This can often result in you being paid far quicker and will considerably reduce the risk of bad debts.
It will help you to predict future cashflow
All our clients use a combination of Xero and Receipt Bank.
By using cutting-edge technology to minimalize data entry we can dramatically speed up the process of bookkeeping. The result is that bookkeeping can be undertaken daily, and the figures will be as up to date as possible.
This is important.
Here at Fresh Financials, we love working on cash flow forecasts with our clients. And having real-time information will reduce any guesswork when estimating the effects on your cash flow over the coming months.
As a business owner, the two things you need around your finances are control and time. Control because you need to know what is happening within your business and time, so you can make adjustments should something unexpected happen.
Could your business cope if a large sales invoice was paid a week late? Will you have the funds to cover payroll if you discount your services to win a contract? If you know these things in advance it will significantly reduce your stress levels and will enable you to take the appropriate action.
It will help to reduce any tax surprises
If you are relying on bank balance accounting to run your business, then it is likely that you will feel as though you are doing well when the balance is high and not so well when there is no money.
As the surprise VAT bill or corporation tax liability just before the deadline will demonstrate, this isn’t always the case.
Your tax bills are not directly related to your expenditure or even to your business’s cash flow.
This is why we recommend investing inaccurate and regular bookkeeping. That way you can log into your Xero account and see how your VAT liability is increasing, so nothing is a surprise. It gives you the time to chase any outstanding sales invoices if you need the extra funds. Or pay for some equipment within the right tax year to help with the corporation tax.
It will enable your accountant to give you better support
A common complaint that we hear about accountants surrounds a lack of communication and support around the daily financials of your businesses.
Sometimes this can be a sign that you need to find a new accountant but more often than not, it’s because the accountant isn’t aware of your current financial position.
Using Xero means that everyone has access to your financial information. And daily bookkeeping will mean that it’s a dependable and an up to date source of information.
So, if you need to apply for finance or need help with cash flow or pricing, the information is already there. It will save you a massive amount of time playing catch up or having to make guesses based upon last quarter or even last year.
Would you like to read some case studies?
It can be very easy to think, oh Fresh Financials are a bookkeeping business, of course, they want me to have daily bookkeeping.
So, to give you some real-life examples, you may want to read how daily bookkeeping helped Piers at Wonder Works gain work on exciting projects such as the latest Star Wars movie.
Or this case study, where daily bookkeeping is helping Steve to expand The Distillery into the Singapore market.
And of course, if you would like to start a conversation with us about how daily bookkeeping could help you, please visit our Become A Client page.