Understand what bookkeeping is and how it helps your business
At its core, bookkeeping is about capturing the flow of money in and out of your business. As part of operating, you’ll have costs that you incur such as premises, equipment, subscriptions, bank fees, insurance, employees and so on - often referred to as accounts payable. You’ll also be having cash flow into the business through the customers you have - conversely, accounts receivable.
Depending on the nature of your business, your books can contain dozens of transactions a day or just a few. When these transactions are made from your bank account, they have an effect on the financial position of your business. Without doing a ‘reconciliation’ of each transaction and recording this via some sort of accounting system, you won’t be able to properly understand this position. Reconciliation is also understanding the types of expenses you’re incurring as well as the specific clients that payments pertain to. All this information is gold when assessing how you’re performing.
Maintaining books has another very important role - to stay compliant and up to take with GST and tax obligations. It’s also common for those responsible for managing payroll to also be involved in the bookkeeping generally.
Should you manage bookkeeping yourself?
This is a really common question and a good one! If you’re a small business without too much complexity or a high volume of transactions, it may be possible to manage bookkeeping - with the help of good accounting software like Xero. What you need to weigh up, however, is when the time you’re spending managing this is eating into valuable time potentially spent better elsewhere on the business, or is taking away valuable family time at the end of the day or over the weekend.
When you actively record your total time spent across the month on bookkeeping admin - including learning how to do certain things, you might be surprised at just how much time combined it’s taking. In these scenarios, it might be worth exploring the option of getting some help. Consider the opportunity cost at hand - if you took that 5-10 hours a month and spent it on your business, what would the potential revenue impact be (after taking off costs of getting help to do the bookkeeping).
It’s not just a time thing either, if you’re not naturally inclined with accounting and the books, you may end up making missteps when things get a bit more complicated. In these moments it’s really helpful to have someone else taking care of it.
Good bookkeeping helps to make managing your tax easier
If there’s one thing every accountant or bookkeeper will agree on, it's that good record-keeping makes life easier and cheaper for businesses come tax season. Messy records require a great deal of time to unpick and reconcile well after the fact. Adopting a bookkeeping approach of reconciling each day or so keeps the transactions fresh in the mind of business owners. If there are discrepancies between bank account transactions and your accounting records, it’s far easier to investigate these as they arise.
Bookkeeping also ensures that your business expenses have been properly captured and thus can be assessed for their deductibility off your total tax or GST payable.
Ensuring financial transactions are recorded accurately
Staying on top of bookkeeping is about recording information properly. If you check your business’ bank statement it can be hard to determine what every payment is about at first glance. If you’re running good accounting software then you’ll be able to match up the amounts paid with the expense or invoice or product they apply to. Platforms like Xero will learn the account numbers of payers/payees and start to help you reconcile even easier.
Accurate recording of transactions will require attention to:
- The customer or supplier the transaction relates to.
- Whether it contains a GST component (to ensure your GST return is accurate).
- The amount paid is correct.
- The amount pertains to a specific invoice due or bill to pay.
- Whether it’s a part payment
- The date of the transaction
Bookkeeping is about accuracy - when the books aren’t balanced you’re not able to report properly nor take care of end-of-year financials and tax.
Processing payroll for staff
If you’re a business that hires staff, activities will include managing payroll. Remember that payroll processing requires an accurate calculation of taxes, deductions, and net pay. Payments to employees via the pay run will need to be reconciled like any other transaction in the business.
Payroll often represents some of your biggest transactions going out of the business and makes up a significant portion of your operating expenses. Bookkeeping practices will ensure that you’re able to pull good reporting on what these costs are.
Reconciling bank transactions with accounting records
A typical part of daily bookkeeping is lining up bank account activity with what’s shown in your accounting platform. In software like Xero, you can set up an automatic feed from each business bank account that flows information into the platform each day. Having such a setup is a massive time saver as all transactions are ready to reconcile against a customer, activity, expense, service, etc.
Sometimes there will be instances where the balance shown in your accounting system is different from what’s shown in your software. Troubleshooting this is good to do as soon as you notice the discrepancy so it’s easier to figure out where it became misaligned. Typical issues include accidental reconciling to the wrong activity, but there are also moments where technical glitches occur. Ultimately a good bookkeeper will be familiar with these systems and be able to resolve such issues quickly.
Financial reporting on the business
Bookkeepers play an important role in your ability to make business decisions. Poor data will prevent the right calls from being made. For example, a business’s leadership team may want to find ways to lift profitability. One of the levers to pull is reducing operating costs. If there’s no good data about these expenses and to what they pertain, it’s hard to make practical business decisions to reduce these.
Reporting has so many other key uses that it really pays to get the books right - tax, GST, annual reports for investors, and so on.
Using software to manage the accounts
Whether you use a bookkeeper or not (and it’s likely a good idea to do so!), we’d highly recommend using software to manage your bookkeeping. Pen and paper or even spreadsheets create so many opportunities for miss entry and confusion. Going back through this kind of record-keeping is a huge mission and can take days or even weeks to untangle.
Software for accounting and invoicing keeps everything really neat and tidy. If there is a mistake, these platforms are designed to help business owners and accounts people remedy it easily.
Pulling reports from software is instantaneous - spreadsheets are anything but!
Why most business owners benefit from outsourcing or delegating bookkeeping
Even if you take on some of the duties of bookkeeping and like to be in your accounting software each day, it’s a good idea to have an expert on your team who can ensure you’re staying on top of everything. Delegating the job of managing daily accounts allows you to focus on the many activities that will help grow your business and bottom line. But think about those moments where you’re met with a challenging accounting situation and are not sure how to proceed. Having an expert on your team will help get these things resolved faster and with less stress placed on your shoulders alone.
RightWay's Bookkeeping team is made up of highly experienced bookkeeping professionals, who are supported by qualified accountants and business advisors. If you have the need for bookkeeping support, so can focus on running your business, then you may benefit from a full accountant engagement and a partner that provides strategic direction on how to grow your business. If you’re interested in learning more about how RightWay can help you, get in touch with our team.
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