Whilst it’s an unusual topic for an outsourced finance director to talk about, the importance of accurate bookkeeping for all business should not be underestimated. Bookkeeping is the fundamental foundation of all financial reporting. The saying goes, ‘Garbage in, garbage out’ and that’s never truer than when you are talking about business accounts.
Without accurate and timely bookkeeping, it’s easy for business owners to make the wrong decisions which could have potentially costly consequences.
The importance of bookkeeping that is accurate and timely
When incorrect information is added to your business accounts or data is incomplete, you may not know:
- The true profits of the organisation
- What to reserve for tax throughout the year
- Your directors loan balance which could give rise to penalties if it goes into debit
- If you can withdraw dividends (must be from available retained profits otherwise it will be ‘ultra vires’ or illegal)
- If you are operating with optimum tax-efficiency
- If you have the correct balances for HMRC return
- Whether debts are being collected on time
- If you are incurring fines or interest on late payments
Accurate and timely bookkeeping is the underlying process that keeps the cash cycle moving in your business. If you have delays in invoicing your suppliers, this leads to significant lag in collecting revenues which in turn puts your business on a riskier footing than it needs to be. Bookkeeping recognises such issues.
Ensure correct tax payments
You are also ensuring correct tax payment, no one wants to overpay tax! With timely checks of sales and purchases you can ensure you are not duplicating sales or missing VAT purchases which could push up your tax payments.
It’s also vital to check and reconcile your bank statements to your accounting software balances quarterly as a minimum. These checks can quickly pick up missing or inaccurate data which, if left uncorrected, could lead to you paying more tax than necessary.
Historic costs provide for robust forecasts and timely decision making. Your business relies so heavily on correct data that without it, you’ll be unable to make even the simplest decisions without wondering if you are doing the right thing. In addition, if your books are always in disarray, this can have a detrimental impact on your physical and mental wellbeing because you are constantly worried about whether you can make the payroll this month or you are going to hit your sales targets.
Business KPIs are meaningless without good bookkeeping
When it comes to more sophisticated management reporting, many companies create a set of key performance indicators (KPIs) which are used to report on the health of the business and the progress towards stated targets. These KPIs might be high level numbers such as Net Profit or Capital Employed or they may be more complex such as Avoided Cost or Inventory Turnover which helps the business to see exactly where changes might be needed. Bookkeeping data feeds into every financial report you create, and decisions made on invalid numbers can have wide-reaching implications.
Business Decision Mistakes
Incorrect or incomplete numbers could lead to decision-making mistakes. When invoices and receipts are incorrectly coded or missing from data, you might make invalid decisions such as removing a product from your catalogue due to inadequate sales performance when the sales have been incorrectly attributed. You might decide to declare a dividend that’s too high if expenses are missing from your books and haven’t been properly accrued. So, the importance of bookkeeping cannot be overstated.
Although Logical BI focus is outsourced finance director support, our team also support Limited Companies with bespoke annual accounting packages at competitive prices, which can include all your bookkeeping support. If you need help with your data entry bookkeeping or want a review of your current processes, why not book a business booster consultancy hour.
Support from basic bookkeeping to sophisticated reporting
Your business can benefit from outsourced FD support to provide deeper insight into what’s driving productivity and profitability, what’s causing the biggest issues and how to resolve them, but this can only happen if your bookkeeping is accurate and up to date. Logical BI can provide outsourced management reporting support and facilitate a robust bookkeeping service to help you create the best decision-making foundation for your company. Call 07739 429495 or email email@example.com to talk about the importance of bookkeeping for your business.
Why not connect with Logical BI on LinkedIn
You may also be interested in:
Strategic financial management for your manufacturing business
Impactful reporting – A management reporting framework for your success