To run a business successfully, you must have an adequate bookkeeping system in place. You need to know what is happening on a financial level, and bookkeeping allows you to keep track of this. If you fail to monitor and analyse your financial activities, you could prevent your business from reaching its full potential.
This guide will explain:
● What bookkeeping is
● The importance of bookkeeping in a small business
● The benefits of bookkeeping
● How Countingup can help with your bookkeeping
What is bookkeeping?
To help you understand the importance of bookkeeping in a small business, you first need to understand what it is.
Bookkeeping is the recording of all the incoming and outgoing financial transactions (or cash flow) associated with your business. You track all your financial transactions, including the money you make from sales (revenue) and what you spend on expenses like materials, bills, or loan repayments.
Before the world became digital, bookkeeping used to be a slow and tedious task that involved physically writing down all transactions in a ledger. Currently, cloud-based technology automates many aspects involved in bookkeeping, making the process much faster and simpler.
Why is bookkeeping so important in a business?
It is impossible to run any business for long without a reasonable understanding of its finances. Bookkeeping ensures you have the necessary funds and information to satisfy your financial obligations, such as expenses and taxes.
Small businesses must pay several different taxes throughout the year, including Income Tax, Dividends Tax, and Corporation Tax. Bookkeeping is crucial when calculating how much you owe to HMRC.
Anyone who is self-employed or runs a limited company needs to file a Self-Assessment tax return every year to declare their earnings to HMRC. You must keep your bookkeeping organised to avoid submitting incorrect information.
The Countingup app has a built-in tax estimation tool that allows you to stay informed about your taxes at all times, so you can estimate how much you need to set aside.
Effective bookkeeping also helps you make more tax-efficient decisions about how you pay yourself (dividends vs salary), what business structure is right for you (sole trader or limited company), and whether you should register for VAT.
What are the benefits of bookkeeping?
Are you still unconvinced about the importance of bookkeeping to a small business? Here are a few benefits that good bookkeeping practices will bring to your business:
Allowing you to stay organised
Failure to keep your bookkeeping in good order causes last-minute stress as you scramble to locate the documents you need to claim expenses or pay your taxes before deadlines pass.
By staying on top of your bookkeeping, you will create organised records that save you time and avoid stress further down the line. Countingup allows you to log transactions, capture receipts, and generate invoices, thereby helping you organise your bookkeeping in an easy-to-use app.
Helping you budget more accurately
Budgeting is important in any business because it enables you to plan for future expenses and investments. Adopting this strategy can help your company grow. Bookkeeping makes it easier to budget because it allows you to create a map of how much money you have available at any given time.
Having clear numbers to analyse also helps you plan how to achieve your business goals. Learn how to budget money for your growing business.
Keeping you prepared for tax season
As mentioned above, all business owners must file their taxes at the end of each tax year. Having an efficient bookkeeping process in place means you have the financial information you have the information you need already prepared when you file your Self-Assessment tax returns. Moreover, bookkeeping allows you to predict your tax liability.
Using accounting software to do your bookkeeping will also help you with the Making Tax Digital (or MTD) system, which the government introduced in April 2019. Currently, MTD only applies to VAT-registered companies. However, in due course, you will need to conduct all your business accounting online.
Teaching you about your business
Whether you are a new business owner or have been running your own company for years, bookkeeping offers you plenty of opportunities to learn about how your business operates. By letting you know where you usually make your money or how quickly your customers pay, bookkeeping offers valuable information that you can use to improve your business performance.
You can discover which customers always pay you late and decide whether you need to implement stricter invoice payment terms. The more you know about your finances, the smarter your business decisions can become.
Giving you peace of mind
As a business owner, the last thing you need is worries about lost receipts or missed tax deadlines. Staying on top of your bookkeeping means you can rest easy knowing that your financial records are ready to be reviewed should HMRC come knocking.
As you incorporate bookkeeping into your daily routine, you will become quicker and more adept at logging your transactions. If you use an app like Countingup to capture receipts and manage your finances, you will save time that can be dedicated to more productive tasks.
Organising your bookkeeping with Countingup
To save time and automate accounting admin, thousands of small business owners across the UK use the Countingup app.
Countingup is a business current account that comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. Its instant invoicing, automatic expense categorisation and cash flow insights mean that you can confidently keep on top of your business finances every day.
You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags, or inaccuracies. Get the Countingup app to apply for your business current account in minutes. All you need is proof of ID and a photograph of yourself. Download the app here.