Bookkeeping can be understood as the ongoing recording and tracking of all the financial transactions conducted by your business. This includes everything from sales, purchases, and other forms of income or expenditure. Traditionally, these records are maintained in physical books, known as account books – and hence the name bookkeeping.
However, with the advent of automation, the latest technologies, and cloud data storage facilities, these books are increasingly being converted into digital formats to save time and bring convenience to the task of bookkeeping. Research on accounting software suggests that 90% of accountants felt that there was a cultural shift in accountancy towards technology-based options like bookkeeping software. Further, the majority of accountants felt that traditional accounting was not enough to thrive in today’s world.
Hence, if you are a budding entrepreneur or a small business owner, you should know some accounting problems you are likely to face and the habits you must employ to succeed.
Bookkeeping Challenges Faced By Budding Entrepreneurs
As a young entrepreneur, you often juggle with different hats. You work on the marketing aspects, sales aspects, hiring new people, strategizing things, and so much more. On top of that, bookkeeping is an additional (yet important) task to keep track of your business’s finances.
Generally, accounting involves storing, recording, tracking, and analysing the financial transactions of your business. This isn’t a simple task and can quickly get complicated as your business grows in size and revenue. That is why entrepreneurs need to know what are the common bookkeeping pitfalls and challenges they can fall into. Here are some such challenges:
- Difficulties in obtaining funds and sustaining cash flows
- Inadequate knowledge required for proper bookkeeping and maintenance
- Too much work on the agenda, leading to bookkeeping taking the backseat
- Inability to understand the industry specifics
- Complicated or cumbersome accounting software
However, these challenges, once overcome, provide innumerable benefits to the business and the entrepreneur alike.
Importance of Bookkeeping for budding entrepreneurs
Managing cash flows, invoices, costs, and payrolls is all extremely critical for running any successful company, especially in the early stages when you are getting your business up and running.
For many businesses, accounting influences all the facets of business management – from business loans and grants to payroll management, vendor invoicing, investor seeking, and a lot more. As a result, however mundane or challenging, bookkeeping is an important aspect of any entrepreneur’s professional life and is something that matters through and through for the business’ financial success.
The challenge, then, is how to navigate through the challenges mentioned earlier in a way that makes the most of bookkeeping activities? For that, here are some useful habits you can look to adopt!
Bookkeeping Habits That Entrepreneurs Must Adopt To Save Time & Money
As a result, whether you are an independent business owner or a budding solo entrepreneur, you should learn to develop good bookkeeping habits in your process from early on. Poor bookkeeping and accounting habits can lead to insufficient cash flows, significant financial losses and can even result in tax implications and penalties.
Whether you are handling the bookkeeping yourself, have outsourced the task to someone else, or are using bookkeeping software – in any case, you must have a few good habits to simplify the accounting process of your business.
Here are five such habits which you should try to practise in your process from early on – the sooner, the better!
Prepare accurate invoices
Inaccuracies on invoices, or any transactional document, can lead to a lot of confusion over the actual worth of the transaction. This, in the larger picture, causes problems during tax filing and returns – which makes it doubly important to ensure utmost accuracy while creating receipts or invoices. It is an excellent habit always to double-check the details you have filled in the invoices – like the due date, total amount, tax amount, customer details, product description, and so on. You might want to spend 2 extra minutes checking the invoice than regretting later.
If you need to send an invoice but aren’t entirely sure about the details you need to put on it, send a proforma first. A proforma is like a standard invoice but not the final draft, so it is not a legal document. When the information on the proforma is confirmed, you can convert it into a proper tax invoice and finalise it!
Always record all expenses
This is one of those habits that can be easy to put off. Recording all expenses always feels like a monumental task. However, it should not be neglected at any cost – however unexciting it feels. The trick – especially when managing business finances – is to not wait until the end of the month to record all the expenses; instead, keep recording in real-time. If you register the payments as soon as the costs are incurred, there is little chance that it will skip your month-end calculations.
Routinely reconcile your accounts
Reconciliation is basically matching the transactions listed on the bank statements to invoices and receipts. Again, this might not be an enjoyable thing to do, but it is imperative to maintain accurate accounts. You could set calendar alerts to remind you to reconcile your accounts routinely. Unlike recording expenses, this isn’t something that needs to be done daily but can be done fortnightly or monthly instead.
Keep digital copies of all essential physical records
Keeping digital copies is a habit that will save a lot of time in the long run. It saves you time and space and it is easier on the environment, too. Digital copies are also a lot easier to organize and store – you can create folders on your local system based on months or clients or whatever parameter works for you. That way, it also becomes more accessible to retrieve a particular invoice if you ever need it later. Further, with the UK government making digital records mandatory under the MTD scheme, it is a perfect time to employ this habit.
Get your books reviewed by experts
It is always a good idea to get an expert opinion if you’re indulging in business-critical things. This review could be even more stretched out than the reconciliation process – and can be done quarterly or annually – but you should have a system in place to get an expert to review your books. It could be once a month, quarter, or year but you should have them checked. It doesn’t need to be a costly endeavour. All you need is an expert pair of eyes to go through your books and point out the things that you could have possibly missed. Just reconciling books doesn’t mean everything will be correct. There are still things that can go amiss – and it’s essential to get those checked routinely.
Experience working with a bookkeeping software
In this day and age, this is one habit that you should most definitely employ, even if you don’t employ any of the above habits. If you’re like most early entrepreneurs, you might be using spreadsheets to track expenses and financial information. That is a good starting point but only for so long. If you’re at a stage where doing this manually is getting challenging, it is a good idea to look out for bookkeeping software to ease your load. Powered by automation and cutting-edge technologies, bookkeeping software seamlessly handles most of your mundane yet essential tasks like recording and categorizing financial documents, sending invoices, managing invoices, performing routine account checks, and so on. There are various bookkeeping software solutions in the market today that come bundled with all the features you need to stay on top of your financial records and books at all times and avoid financial blunders!
The best time to start working on these habits is right now!
While most of the financial side of any business operations might seem extremely time-consuming, robotic, and mundane, the importance of doing those tasks properly can’t be overstated either. Whether you are a solo entrepreneur or a business owner, you should work towards building these habits and employing them in your work.
If you’re up-to-date with your books and finances, you’ll realise that half of your stress feels reduced. Plus, you have a lot more control over the financial decisions and future endeavours of your business. When you stay up-to-date on your records, expenses, and profits, you reduce your stress. On the other hand, neglecting the financial side of your business will end up leading you head-on into difficult financial problems. So, get started with working on your good bookkeeping habits!