The consequences of bad bookkeeping can be devastating. Here, our founder and MD Phil Burnell shares his thoughts and offers a simple, one-word solution.
Does this sound familiar?
You’re sat across from an accountant (or a bank manager, or a mortgage broker), and they’re pointing at numbers on a screen, dropping jargon-bombs while looking for your approval (or disapproval, or agreement – honestly, you’re not actually sure what they want).
Your palms are a little sweaty at this point, and that cup of tea they poured you at the start is now lukewarm at best. And come to think of it, why weren’t you offered a biscuit?
Anyway, I digress. The fact is, it can be downright intimidating to talk numbers with someone who appears to know what they’re talking about. And if you feel like this, don’t worry, you’re not alone. Most entrepreneurs I know got into running a business due to a longstanding passion. It had nothing to do with a love of numbers.
However, you can often feel obliged to nod along in agreement during those types of meetings, because you’re a business owner; you should understand absolutely all of this stuff, right?
Well, no. But that still leads to many business owners keeping their accountants at an arm’s length.
And this brings me to the crux of my post: why avoiding your accountant and doing your own books could be bad news for your business – and the one word that could fix everything.
What does bad bookkeeping look like?
It’s the same phenomenon as above, and I see it in action constantly. Earnest business owners who believe they need to be involved with every aspect of bookkeeping, but still get a bit squirmy when talk turns to finances; to the point where they don’t seek help and keep making avoidable mistakes.
Mistakes like claiming VAT on items that don’t have VAT – such as train fares or entertaining, or even director’s dividends – meaning VAT has been overclaimed and a can of worms has been opened.
Or mistakes where items have been categorised incorrectly, and expenses have been posted to balance sheet codes, resulting in profits being overstated. Which in turn can lead to important decisions being taken on incorrect figures.
At the end of the day, you need to understand your business’s cost of sales and its fixed costs. This allows you to measure the profitability of your business more accurately. And this all starts with good bookkeeping; i.e. making sure items are coded correctly when completing the books.
Why is good bookkeeping so important?
In short, good bookkeeping is so important because bad bookkeeping is so incredibly risky.
Let’s imagine for the moment that you’re captaining some sort of seafaring craft. Ahoy there. But instead of having access to accurate weather information and up-to-date maps, you have a dusty old captain’s log and the advice of a first mate who’s almost certain it’s not going to rain. He can feel it in his bones.
Now, one of two things could happen: You could navigate your way through calm waters to the safety of a familiar port; or you could just as likely end up in the midst of a storm, before being ransacked by pirates.
Likewise, you might guide your business to moderate success despite bad bookkeeping, but I’d wager you’re more likely to run into trouble. If your figures are incorrect, then your decision-making abilities are impaired. And if you make the wrong call based on wrong numbers, you’re not maximising the potential of your business and reaping the level of reward for all of the long hours you’re putting in. You could also leave yourself open to tax issues, hefty penalties, and potentially damaging cash flow problems.
No-one said it would be easy…
There’s no denying that running a business is tough. And so it should be. If it was that easy, everyone would do it. But there’s simply no reason why you should make it more difficult than it needs to be by persisting with bad bookkeeping.
Good bookkeeping is the foundation upon which businesses are built. When you can trust the financial data you have at hand, you’ll feel free to make big decisions with less apprehension. Sure, there’ll be times when you’ll go with your gut, but that doesn’t mean your gut (and the rest of you) shouldn’t remain informed throughout.
This is why it’s okay to ask for help. A good bookkeeper will keep your records neat and tidy, provide you with up-to-date reports, help you understand your finances, and prepare you for the choppy seas when your next tax deadline appears over the horizon.
At this point, a few things might be running through your mind:
“You’re right Phil – I don’t want to do my own books anymore.”
“That’s all well and good Phil, but I can’t afford to hire an in-house bookkeeper.”
“Wait a minute… why wasn’t I offered a biscuit?!”
Well, I can’t speak for the sloppy approach to baked goods exhibited by that fictitious accountant earlier in the post, but I do have an answer for the first two questions.
So, what’s the answer?
One word, three syllables: Outsourcing.
If bad bookkeeping is holding you back, it doesn’t have to be a straight choice between DIY and hiring internally. Thanks to the widespread availability of cloud technology, it’s now easier than ever to outsource bookkeeping tasks.
And the benefits are crystal clear. It’s far less risky, far more efficient, and incredibly cost effective.
Outsourced bookkeeping gives you instant access to highly trained professionals who are constantly learning and honing their craft – the types of individuals who may well be out of reach if you were trying to hire in-house.
Go back to the future for better bookkeeping…
It’s 2018, and the modern business needs to move on from average accountants offering compliance-only services, and dusty desktop software solutions serving up “insights” from several months ago.
It’s time to take advantage of new technology, harnessing its power to streamline accounting and bookkeeping tasks. By introducing software such as Receipt Bank into your business, you will no longer need to deal with paper invoices or file away receipts. Simply email invoices directly into Receipt Banks, or snap a quick photo of a receipt with your smartphone.
The software will then pick out all of the important details and seamlessly integrate them into your cloud accounting software of choice. In fact, if you’re reading this and you’re still entering invoices manually, make changing this approach your top priority!
In my opinion, outsourced bookkeeping complemented by cloud-based technology will put most businesses on the fast-track to developing a competitive edge, while saving money on tax and expenses. Not to mention the fact that a more informed and less-put-upon business leader will typically be more agile in responding to business opportunities and threats.
Let’s talk bookkeeping basics
As I mentioned at the start of this post, I know that people can be hesitant, or embarrassed, or even stubborn when discussing business finances. But if you feel like you have a gap in your knowledge, it’s not something to run from.
I and my colleagues here at Spark can talk you through the basics of bookkeeping (jargon-free), help you implement cloud technologies, and take the burden of doing your books off your hands.
You’ll be left with the time to focus on doing what you do best, and the accurate and up-to-date numbers to help you do it better than ever before.
If that sounds like your cup of tea, give us a call on 0121 794 4009, or complete the form at the link below and we’ll call you. And if you come in for a chat, I’ll even arrange some biscuits. Nice ones, too.