Why It Is Important to Know and Understand Business Financing?
While running, Archway Books, a chain of bookshops that I own across the north of England, I learned a lesson about the value of keeping on top of the financing of my business. It did not require more than a few minutes a day in my case; to cash up and add the totals to spreadsheets.
As a result of doing this, I always had complete knowledge of how all my shops were doing in sales. As I was able to make comparisons of the figures with those of the previous, year, month, or week, it was a great help to me for determining my cash flow and in deciding how to push the business forward. This also helped me to send out invoices in time and chase late payments before supplying any more books. The key to the running of my bookshops were following these steps, along with accurate bank reconciliation with the help of a professional bookkeeping company such as Bould Bookkeeping.
I am one of these who like working with numbers, and as a result, it was not a hardship to complete my own bookkeeping. I realise that this is not the case for most people. It is more than likely that when you were setting up your business, you focused on other things than bookkeeping, and that you gave a low priority to keeping accurate records.
The Importance of Bookkeeping
Just as sales, technology, marketing, and customer relations are essential parts of your business, you must not avoid paying attention to good bookkeeping as this is essential for both the running and growth of the business.
You can invest in acquiring the knowledge of effective bookkeeping, though this is time-consuming, or you can outsource the work to a specialist. Any outsourcing of any part of your business, like bookkeeping, comes at a price but can bring value to your business and yourself, which will be more than the physical cost. You will have a peace of mind, and not have to spend sleepless nights, while you also have more free time that allows you to concentrate on the aspect of your business that you know best while having your deadlines covered, knowing that there is someone who is overseeing your business finances.
In recent times, bookkeeping has become highly automated and gives you an extensive choice of reports, all of which can be of great help in understanding how your business is doing, financially. But do you take full advantage of these reports? You need to be familiar with reports on Profit and Loss, that can be opposed to a Statement of Financial Position, or know where your business is financially at any given time through a Balance Sheet. You need to understand how assets depreciate over time. There is a whole list of financial terms to understand, a process that can be quite daunting.
Nevertheless, if you keep on top of your finances, you will avoid having to pay penalties for late submission of accounts and help your cash flow if you know how to access your up-to-date accounts. I feel this point is crucial. As per my experience, many businesses leave it to their accountant to finalise their accounts once a year. In an ideal way of running your business, your finances need to be checked and kept in proper order more often than just once a year, with either you or your bookkeeper carrying out this work. When you keep a close watch on your accounts, you can closely monitor the businesses’ key indicators, like gross and net profit margins and executed turnover, so that you can do the planning need for better cash flow.
Benefits of Bookkeeping
• A dedicated and thorough bookkeeper will keep detailed records that are always up to date.
• You always remain compliant with the law.
• Planning is easier.
• Reports are available instantly.
• You have better relations with investors and bankers.
• Better prediction of your tax obligations.
• Your time of response to business is faster.
• Financial analysis is faster, and this can reduce the cost of accounting.
• No problems with audits. Better access to balance sheet details which you can compare to statements.