small business bookkeeping questions

 

This question was posed to me recently by one of the students on my video bookkeeping course. I figured that if she has that question then its likely that so have other business owners.

 

First let’s look at the reasons for doing accounts:
Primarily it is to record all of your business transactions, so that:

  • You know whether your business is profitable or not
  • You know how much tax you will have to pay
  • You can accurately complete your VAT returns
  • You can accurately complete your tax returns

Which of these is the most important to you will determine how much time you devote to doing your accounts and how regularly you do them.  (Obviously having to do quarterly VAT returns does mean a commitment of once a quarter at a minimum)

If you are a one person (sole trader) service business you will probably have few transactions on a monthly basis and you probably have a pretty good idea of what your income is and also your profits if expenses are staying consistent too.

So on that basis, you could decide that you will complete your accounts quarterly or even annually.  If you don’t find the process of actually doing your accounts too tedious then annually could suit you fine, but having done it monthly for say half an hour a month makes the whole process far less cumbersome than spending a whole day once a year doing it.  So you can see it is a matter for your personal preference.

A product based business that sells hundreds of products per month which has the associated costs of buying in or manufacturing the product, staff costs, premises costs etc at a minimum should be keeping monthly accounts otherwise it is easy to lose control of things as suppliers go unpaid, turnover (sales) are not being monitored to see if there is a need for VAT registration and most important of all, cashflow is not being monitored, which is the death knell for any business.

If you want to increase your business profits over a set period of time, because you have financial goals you want to achieve, then keeping on top of your accounts is of utmost importance because without them there is no way of accurately telling whether you are meeting your goals.  For a product based business I would also be looking at monitoring the profitability of individual products or areas of the business to make sure that selling that product/service continues to be financially viable.

I discussed this in my article about goal setting at the beginning of the year – I talked about setting financial goals and then monitoring the actual results against the forecast to see if you are on track and the only way to do this is if you are keeping on top of your bookkeeping

Like this post? Subscribe to my RSS feed and get loads more!