How important is bookkeeping?
Bookkeeping is often seen as a low priority by business people. After all, it's not necessarily the easiest business task; the detailed input and balancing of numbers can be very frustrating. Besides that, why spend an hour on your books when you could be closing a sale or doing billable work? In fact, why go through the hassle at all? Shouldn't the accountant or auditor be able to sort things out at the end of the financial year when you hand over your shoe box of receipts and deposits?
Diligent bookkeeping isn't only a requirement of Companies Act, it's also a useful process that can keep your business running. Here are some points to consider before relegating your bookkeeping duties to the bottom of your to do list:
1. Regular bookkeeping reduces stress, anxiety and it creates “peace of mind” around your business venture. There is no rush to do it all at once if information is needed.
2. Bookkeeping keeps your goals in sight and lets you know when you have financial resources available to accomplish other goals. Having an up-to-date financial position tells you whether you can afford a new piece of equipment, or a great advertising opportunity.
3. It's The Law! Any person who carries on a registered business in South Africa must keep books and records at their place of business in such a format or order to enable the assessment and payment of taxes.
4. Tracking your sales will tell you whether you have slow times during the year, helping you plan by putting money away during the good times. It will assist you in setting up a Free Cash Flow Analysis, a tool that you can use to determine which monies are not tied up in operating activities.
5. Knowing when you have peak times and slow times can help you control your spending, making it easier to avoid major expenditures during your business' slow times, or economic downturns.
6. A set of books will provide you with financial statements, the most recognizable being a Profit and Loss statement. This document will tell you what your sales and expenses are, and whether you made or lost money.
7. You will avoid penalties and fines on late remittance of taxes such as VAT, SDL, PAYE, and Income taxes – by keeping your paperwork organized.
8. Tax time will be easier if you know that your books are up-to-date when February comes around. This way, all you need to do is provide financial statements and/or a disk to your accountant. You don't have to spend time looking for receipts, finding someone to put it all together for you and paying more because you are not organized.
9. It keeps the boring aspect of the business to small regular time chunks of “keeping the books” rather than one large time chunk of “I'll keep putting it off”.
10. When you apply for credit from vendors or a loan from a bank, you will always be asked for your financial statements and/or income tax returns to verify your creditworthiness. Most of the financial institutions will ask for the audited financial statements of the financial year past as well as the management statements for the period since.
11. Should you decide to sell your business, buyers will want to see your company's past financial records to assess feasibility of the business.
The importance of keeping adequate records cannot be stressed too much. Without records, you cannot see how well your business is doing and where it is going. But most importantly, you need them to run your business successfully. It is no use knowing how your business did last year, it's a nice to know. You need to know how your business is doing today or this month compared to last year. This is crucial.
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