If you intend to deal with the records of a business yourself, basic knowledge of bookkeeping is crucial. HMRC conducts random business record checks, and if things are not up to date or the figures are incorrect, you may well earn yourself a penalty. Having an understanding of basic bookkeeping will also help you to keep track of business finances, and whether or not the company is profitable at a specific time.
Fundamental bookkeeping skills
You need to have basic skills for bookkeeping so that you can see at a glance whether your business is making a profit or losing money and, if so, how much. If you intend to invest or you are considering applying for business finance, you will need to know if your company is a secure investment. Keeping track of finances will also alert you to financial trouble ahead, so that you can take steps to avoid financial disaster. A lot of companies outsource to an accountant, but having the basic skills will still help on a daily basis. If you really have no idea of how to deal with bookkeeping, it is preferable to outsource to a professional.
Reasons to keep good business records
Bookkeeping involves keeping tabs on income and expenses, with every financial transaction logged in the records. This will make it possible to easily see how your business is coping financially. If you are making a loss, you may be able to see where you can reduce unnecessary expenditure, or which invoices remain outstanding.
Decision making is often reliant on the financial welfare of a company. If you are thinking of hiring an employee or buying new machinery, you need to be able to see how this will impact on cash flow.
Obtaining business finance has become extremely difficult for all companies, but especially for small businesses. A financial organisation will expect to see your business records and may want to see some of your financial and bookkeeping documents.
Budgeting is crucial for all companies, and bookkeeping will make this a simple task. You will see where you are spending cash and where incoming revenues come from. Bookkeeping will also make it easier to complete your self assessment tax return, as you will have all your figures to hand. If you have a reliable bookkeeping system in place, you are more likely to pay the correct amount of tax in a timely manner.