How incorrect Bookkeeping can diminish the Performance of a Business
Poor bookkeeping is likely to hurt your business in a number of ways regardless of whether the business is profitable or not. Besides the missed opportunities, your business can incur more running expenses or plunge you into a legal situation. Knowledge of bad accounting practices can help you make the right decision in a bid to avoid improper financial record keeping. There are a number of factors which can be impacted on due to ineffective bookkeeping.
Poor bookkeeping can have negative effects on how one conducts their business. For instance, you may find yourself paying your debts late, leading to higher interest rates, fewer payment terms, loss of credit and interference with your credit score or reports. To avoid all these, your bookkeeper should track all your cash flow as a way of managing your transactions easier for you. Effective reporting and cash management are all part of effective bookkeeping. Speak to your bookkeeper or review your bookkeeping services to ascertain what value the process is adding to the growth of your business.
Lack of Sales and Profits
Poor management of your business can make you lose access to good suppliers and vendors. Consequently, you may start losing sales as well. On top of that, a slowdown to your business may turn away your clients and customers who might end up looking elsewhere to meet their requirements. Other than feedback, customer relationship and effective customer management your financial numbers are a huge indicator of your business performance. Increased churn rate, reduced payments, or an increase in high number of low value customers can tell you a lot about your business and its performance. Determine at the very beginning if all your business needs is a bookkeeper or a hybrid accountant who can help take care of your bookkeeping, accounting and advisory services, as all three are highly interdependent.
Improper bookkeeping is a recipe for legal problems, especially where unpaid or late filing of your tax returns and inaccurate deductions are involved. Furthermore, lack of enough funds to pay your creditors can culminate into your business being pursued legally, with a legal claim against your company or debt collectors set loose on your business. Should you hire a bookkeeper without enough knowledge pertaining to tax policies, look for an expert in matters to do with tax to lend a hand in planning your yearly accounting procedures, make sure your bookkeeper communicated regularly with the tax accountant. This way, you will be able to have full control of your income, payroll taxes, and sales, as well as deducting expenses correctly.
Chances are, you may end up declining opportunities that can help you expand your business, improve your marketing and reduce debt on the assumption that you don’t have enough money. Take this example; supposing you buy £2000 worth of goods in the month of January, you will not have to settle the payment in the same month if it’s put on your credit card. Should you pay the balance every month, it is obvious that your credit card company will earn £2000 from you in February. Recording £2000 under your expenses in January and £2000 card payment as of February’s expense, your record will indicate that you have a total of £4000 in expenses. In actual sense, you will be having only half the total cost. This shows how important it is to have an eye on your cashflow as well as your accounting to be able to make proper decisions.
Reduced Decision-Making Opportunities
Keeping accurate financial reports allows you to monitor your departments, distribution channels, products and overall performance of your business on a regular basis. Balance sheets, budgets, cash flow statements, ledgers, receivables, payables ageing reports and statements on profits/loss all play a very significant role when it comes to spotting opportunities as well as addressing problems in a timely manner. All these are attributed to accurate bookkeeping as a way of running your business efficiently.
Here are 12 Helpful Tips to Enhance Bookkeeping
- Personal and Business Expenses
There are changes that the business owner needs to make in regard to sole proprietary business bookkeeping. These changes involve the use of credit cards for either personal or business needs. Such situations are common where personal expenses are recorded in the accounting software. However, this is a common mistake in bookkeeping software, resulting in problems when it comes to categorizing Personal and Business Expenses. To solve such a problem, you will have to open a new bank account and use it for your business expenses.
- Bank Reconciliation
As modern business income and expenses become digital (using NEFT, PayPal and others), every business owner is required to carry out bank reconciliation of the income, expenses, and other related transaction regularly. This tip is quite helpful in bookkeeping for business owners.
- Frequent Monitoring of Accounts Receivables from Customers/Clients
There are two categories of sales; the accrual and cash sales. In the case of accrual, business owners need to pay their attention at money receivables from their customers even if it means following them for debt recovery.
- Shift to Cloud Accounting Software
Shifting to cloud accounting software for your bookkeeping can help you in keeping abreast with real-time updates on your accounts through your web browser or mobile apps.
- Monitor All Slow-Moving Goods
There’s a need to monitor all the slow-moving goods. This is because the slow-moving inventories may bring some accounting issues, especially in bookkeeping due to expiry or damages. As such business owners have the obligation of accounting their inventories physically and then recording the results in their cloud accounting software.
- Use Online Banking
It is always a good idea to operate another bank account under your business name. This bank should have the functions for online banking to help you access vital information on transactions in real time.
- Keep Records of the Petty Cash Expenses
Some business experience problems arising from keeping their petty cash records. This is due to the assumption that petty cash involves a small amount of money but without a proper record, there are risks of fraud. Hence, there’s a need to have accurate records of petty cash as one way of ensuring that your bookkeeping is on the right track.
- Use Suitable Accrual or Cash Method
The first decision that a company should make is to choose a suitable accounting method. This can be an accrual or cash method. Whichever method you settle on, make sure it works well for you in relation to bookkeeping. Speak to an Accounting Firm or your Accountant, if you do not have one look for an accounting firm nearby or a suitable online accountant, either ways speak to a specialist to figure out the most suitable option for you and why?
- Avoid Cash Expenses
This tip is helpful especially when it comes to the drawback resulting from cash expenses. These drawbacks include audit trail, lesser documentation for accounting, changes in the overlook of the expenses, and changes in the theft of liquid cash and so on. To overcome such problems, you can use checkbooks, debit or credit cards and any other useful method that can assist you in keeping track of expenses.
- Grouping Ledgers in the Right Way
Ledger grouping is essential in recording fixed assets, loans, capital accounts, and advances. Once the ledgers are grouped accordingly, it will make bookkeeping easier and effective for your business.
- Record Sales and Loans
Small companies can acquire funds from sales or from loans. That is why it is necessary to have a record of such funds raised from loans or sales. If you don’t do so, it is likely that someday you may be forced to pay needless income tax. Seek advice from a tax accountant to design the most tax effective methodology for your business.
- Reminders of Deadlines
Business owners have the responsibility of keeping track of their payment deadlines. These payments can be payrolls, advance tax payment, labour expenses and much more. Therefore, it is important to have a record of reminders of deadlines to avoid the shortage of funds. You can achieve this goal by syncing HMRC’s deadlines with your own business calendar.
An effective bookkeeper working in collaboration with your Accountants and Tax Accountants, or a hybrid Accounting firm which can cover all of these needs without the need to go to separate individuals, can make a huge impact on the performance and growth of your business. A large number of businesses believe bookkeeping to be a data entry process and end up selecting unqualified people to do the work, regretting the decision in the long term. Make sure to setup a strong foundation from the beginning to avoid future growth and performance management problems.
Clear House Accountants are hybrid Accountants in London, our services cater to all your business, accounting, tax, bookkeeping and business advisory needs, in one place. We have in house experts who can cater to the regular compliance requirements for your business, or can design bespoke solutions using our IFIT framework, specific to your business problems. Speak to us to learn more.
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