Why your business needs killer bookkeeping
Bookkeeping is so important, but often gets relegated to being just an administrative task rather than the cornerstone of all financial information that follows.
Why is this? There’s certainly an idea in business that anyone can do bookkeeping and naturally most people will give it a go. However, because of this attitude, working with traditional bookkeepers means most businesses get a generic delivery of their financial affairs.
In this blog, I’ll cover 3 things that your business might be missing out on as a result of poor bookkeeping practises.
Get your bookkeeping ready to a year-end standard in-year
You’re a business owner. You’ve got a tonne of paperwork, receipts and “admin” that you don’t have time to deal with properly. You give this stuff to a traditional bookkeeper and their job is to clear that paperwork.
They’ll admirably clear the paperwork, however, you’re left in a situation when it comes to filing your year-end accounts, that your accountant has to reconcile accounts and get everything prepared. Their remit, as they see it, is reactive, not proactive. Even if all the paperwork has gone, not everything is done. In their eyes, there’s nothing left to do but also there’s no useful information to look at either.
The problem with this is that business owners can go blissfully through the year completely in the dark about the direction their business is heading in. Sometimes this is to the extent that when it comes to their year-end, they find out that the business doesn’t actually have any money – and year-end is the wrong time to find out you have no cash as the whole world will soon to be able to see this.
By completing your bookkeeping to a finished standard, you can deliver timely management information that drives business growth.
You can find out anything to do with your business including:
- Cash flow and how quickly customers are paying for example
- The value of sales required before you start making money – or your break-even point
- Ratio analysis – its profitability, efficiency and solvency
Benefit from ratio analysis
One of the main perks of getting your bookkeeping to a year-end standard sooner rather than later is being a position to carry out ratio analysis.
Ratio analysis is a series of financial insights that can be used to improve a business’ operations and profitability.
We’ve used ratio analysis to really help businesses improve efficiency and ultimately make them more profitable. For example, we helped a group of hair salons improve stock management. Prior to making a series of improvements to their accounting processes, there was little control over stock. Using some mathematical comparisons enabled us to work out what margins they were operating at to a very detailed level.
This gave us our starting position which essentially enabled us to work out where they were going wrong. We brought their in-salon product spend down from 24% to 16% of sales saving just short of £100,000 a year. It would be wrong to say we saved them £100,000, however before there was no tool in place to accurately measure the effects of their stock processes. With this information in place, they knew what progress they were making and were able to build on each improvement. Without this information, they’d have achieved very little progress since to their knowledge, they were doing everything they could.
Watertight bookkeeping puts a business in an excellent position for borrowing
If you can tell your bank to the pound what your finances have looked like over the last two years, this puts you in an excellent position for borrowing.
Without solid bookkeeping, you might find yourself in a similar position to a client we recently took on. We opened their accounts and noticed things hadn’t been filed properly or on time. Also, accounts hadn’t been reviewed and paperwork was missing.
Worst of all, the lack of accuracy had a real detrimental effect. Our client was looking for additional borrowing but the banks were laughing them out of the door because their figures were so obviously inaccurate to the trained eye.
Without slick bookkeeping in place, forecasting is impossible and you won’t have access to management information to provide you with real insight into your business month to month.
A business owner who has been running his business for a couple of years recently asked us, ‘Does my business need this level of detail at this stage?’. For us, not doing it properly in the first place is just lazy. When bookkeeping is done thoroughly, you can gain the sort of insight and knowledge you just don’t see when you’re doing everything else to try and make the business a success.
In many ways, killer bookkeeping will help you to confidently action new changes to your business which will have a dramatic effect to your bottom line.