As accountants we often get asked: “Why Bookkeeping?”. This question has come up a number of times recently with our clients and we thought it best to write down all the reasons that we can think of why a (Good) bookkeeping system is essential for any growing business:
1 – Not missing expenses (and the tax benefit of those expenses)
The first rule of good tax planning is to make sure you claim all allowable business expenses. In the chaos of a business some expenses are paid with personal funds, some are paid in cash, some slips get lost as time goes by and some payments are made with personal credit cards, etc etc. To make matters worse you then have to try and remember at financial year end or many months thereafter what happened?
Regular bookkeeping solves this problem.
2 – Knowing where you stand
Information is key and the balance of your checking account is not your profit. Knowing where you stand, in real time with cloud based bookkeeping systems, is valuable information for any business owner. Knowing things are not going as planned, allows you to make changes to rectify the situation before the situation goes too far. It also allows you to know when things are going right and when you should keep doing what is currently working. The head in the sand approach is best left to a (few) other situations in life, not business finances
3 – Estimating your tax liability during the year
Few things in life are certain and as the saying goes, tax is one of them. Tax season is a daunting experience for many business owners. This is especially daunting if you have little idea of your tax liability.
With a good bookkeeping system in place you can have a constant idea of your profits, and be able to make a good estimation of your profit tax liability. A good bookkeeping system also gives you a good sales tax liability balance. This allows you to keep some funds aside for when the payment comes due.
As far as business goes, knowing whats coming is certainly better than constant surprises.
4 – Tax season becomes a breeze
Collecting and summarising all your financial information just before tax season is a bit like cramming for a big exam the night before – It may have helped you pass but we all know you probably could have done better and it could have been a lot less stressful. Doing your bookkeeping during the year makes tax season a much less stressful and with the right system giving your tax accountant the right information is really as simple as a couple of ticks.
5 – Cash vs Accrual with the click of a button
Accountants can give you a long lecture of the difference and nuances of the cash vs accrual basis of accounting. For many business the cash basis work perfectly and gives them a good idea of where they stand, however, for many the accrual basis is a much better estimate of their current situation. Some examples include SAAS (Software as a Service businesses) and other recurring revenue business, businesses that run projects and receive large payments up front. In these cases when the money comes into the checking account it is not your revenue yet. The same process goes for expenses. Some expenses are paid for the entire year up front and sometimes a fairer way to look at things is to smooth that payment across the year.
A good bookkeeping system, allows you easily allocate these sales or costs across the year so that you understand you actual (accrual) situation versus simply how much money there currently is in the bank. Some systems such as Xero or Quickbooks allow you to, with a click of a button, view either the cash or the accrual view of your business.
6 – Good Bookkeeping Systems make Invoicing easy
Most modern cloud-based bookkeeping systems make invoicing for the many different types of systems a breeze. Maybe your business has a fixed fee every month. For that you can set up a repeating invoice. Or perhaps your business invoices every time something is done. For that your staff can invoice on a tablet the moment they are done. Good modern bookkeeping system even allows time tracking, project tracking and a host of other integrations that make invoices from many other systems a breeze. They then allow you to email these invoices directly from the system without downloading it. Some systems, such as Xero, even allow you to know whether you client has received an invoice email or even viewed it.
Some other businesses have staff on the road or in the field all day. For these clients they need to be able to easily invoice on the go and most cloud based bookkeeping system that can easily be done from an app on a phone or table.
For some businesses invoicing alone is reason enough to get a good bookkeeping system in place.
7 – Good systems allows integrations that can make collecting money much simpler
Many modern cloud-based bookkeeping systems such as Quickbooks Online and Xero integrate with many different payment systems. This includes anything from credit card machines such as Square, to online credit card gateways such as Stripe. This allows you to get immediate payment from anywhere in the world with an internet connection.
For businesses that give payment terms to their clients these systems allow for automated reminders on outstanding invoices at various intervals with gentle email reminders to follow up on outstanding payment.
Lastly, for some businesses that get fixed regular payments from their clients they can even integrate directly with systems like Rotessa to Collect ongoing payments with ease.
8 – Helping you reconcile your bills or supplier balances
For some businesses keeping track of who they owe money can be daunting. Traditionally this would take up a lot of time at month, collecting all the bills, comparing them to statements owing by hand and then reconciling any differences. With a good bookkeeping system, these bills will already be captured during the month. This is then easily compared to statement and the differences can easily be identified.
9 – Helping you see the future
With good accurate records, for many businesses looking forward with some degree of accuracy becomes possible. Without good historical records, any financial forecasts become less and less accurate. We appreciate that looking forward is never 100% accurate but it often gives you a good sense or range of what is possible and is often a good target to work towards. Many of the current good bookkeeping systems give you automatic short term cash forecasts, can take budgets you prepare elsewhere to compare against and easily help you export reports that you can use to prepare these forecasts.
10 – Access from anywhere
As any small business owner will tell you, it’s often hard to take a holiday. “Everything stops when I’m not here!”. With cloud based bookkeeping system such as Xero or Quickbooks Online, you can access you financial information from anywhere in the world with an internet connection.
I mean, who would even think of doing that last invoice to a client as they summit the peak that wondrous mountain? That is unlikely. But you may want to have a 5 minutes check in back at the hotel as to how the business is tracking while you’re not there. Choosing a good cloud based system makes that a possibility if you really have to.
11 – No backups or data losses
The cloud has changed the modern world in many ways. One the more positive ones is allowing access to information from anywhere, in a secure way. As far as bookkeeping systems goes this means you never need to update software again, you don’t need to keep manual backups and worry about your information being lost if your computer decides it’s time to go to computer heaven.
12 – Documents in the Cloud
In the past business would spend enormous amounts to buy paper and expensive printers to print documents on. They would then spend even more money on files and buildings to keep those files filled with documents in.
As a modern business owner you have the choice to skip all, or atleast most, of that and keep your documents electronically and in the cloud. Over the last few years this has become more realistic and the obvious choice for business owners. With the advent of COVID this trend has accelerated even further.
13 – Automation
Automation and AI emotes many different emotions in different people. Being replaced by machines seems to have been a boogey man for many decades since the industrial revolution. We are no fortune tellers and if we read the articles correctly, accountants would have been replaced by machines a decade ago. What has happened in reality is that it started doing much of the grunt work such as posting the same transaction in the same way you have for the last 6 years automatically or automatically matching a payment to a bill in your accounting system. As a firm we have chosen to embrace this trend and have used it to not only make our lives easier but also the lives of our clients. For this very reason a large portion of our clients now do their own bookkeeping and leave us to only deal with the tax planning, finance planning, tax returns and financials and other items we’re good at. While we may yet be replaced by robots, in the meantime we’re enjoying the benefits of this automation and we’re helping our clients take advantage of these same benefits in their business. In business even the small advantages can add up to a larger impact than you can think and using automatic bank feeds and automatic document OCR systems are a no brainer to us. Who enjoyed capturing those manually anyway?
If you’ve come this far, we have to say, we’re impressed, John or Sarah, and we thank you for reading this far.
We could go on about many other reasons why good bookkeeping and a good bookkeeping system is not only a good idea but often a necessity but we think this covers our bases pretty well. Or it may be because we like the number 13 quite a bit. We hope you have found this article useful!