Posted: Thu 24th Mar 2022
The Cambridge Dictionary describes bookkeeping as: ‘the job of keeping an exact record of the money that has been spent or received by a business or other organisation.’
I would say it’s simply keeping and updating your business’s financial records.
For a lot of entrepreneurs, it’s not that they don’t know what bookkeeping is, the problem is that it seems to distract from running the business it’s meant to be keeping records of.
While accounting and bookkeeping is not the oldest profession, it does go back to thousands of years to early civilisation.
Luca Pacioli, an Italian mathematician and Franciscan friar, is credited with documenting the current double-entry bookkeeping system in use today, in the 15th century.
Apart from myself and some of my accounting colleagues, I don’t meet a lot of people who enjoy bookkeeping.
However, every entrepreneur I’ve met wants to have well-kept books and they are really happy when their accounting records are up-to-date and accurate. For me, there are two reasons why you bookkeep.
The first is to meet all obligations including statutory requirements, details about an organisation, its operations and finances. For instance, the government’s website, gov.uk, gives more details about accounting records requirements for companies.
To calculate and pay taxes, you need to bookkeep. HMRC requires it.
The more important reason for bookkeeping is to sustain and grow the business. You need to update your financial records so that you have the data and analysis to understand your business’s performance.
This should then guide your decisions. And it’s not just an annual process – you need to analyse and make decisions on an ongoing basis.
For some, this is a silly question because they do it constantly. For others, receipts, invoices and any other financial records are stuffed into piles or in shoeboxes with the hope that it’s all handed to the accountant to do his/her magic.
I would advise that you keep and update the books more frequently than once a year. In fact, you should update them as often as possible, but with the small caveat: ‘as long as it does not interfere with the sustenance, growth and success of the business.’ Regular updates simplify bookkeeping.
There is now no need to spend time manually entering transactions such as expense receipts, as most accounting systems can now automatically read and load such transactions into company records.
This also solves the need to keep records to meet statutory requirements. In summary, with the right systems and accounting personnel support, you should have up-to-date accounting records, and spend relatively little time on bookkeeping.
The days of hand-writing accounting records in ledger books are long gone.
There are lots of systems and tools you can use to bookkeep, from spreadsheets to accounting systems like Quickbooks.
These tools take the pain away from bookkeeping and give you access to data and analysis that helps drive your growth.
Relatively simple analyses like profit margins and more complex information on cash flow and working capital are easily accessible to you. Trends over several years are also just as easy to see.
As an entrepreneur or business owner, you should not be spending most of your time bookkeeping.
So, who should? You have the option of hiring accounting staff if the business is big enough and can afford it. Or, you can outsource your bookkeeping to accounting and bookkeeping firms.
The options taken will depend on the cost and business need. For instance, can you afford to hire a bookkeeper or is it cheaper to get the service supplied? Do the accounts require significant bespoke analysis that you cannot outsource? These are questions you should ask yourself when deciding what kind of bookkeeping you need.
Bookkeeping should be a tool that supports a business’s success, not a pain that distracts from it. If your bookkeeping is not up to scratch, you need to sort it out sooner rather than later.