Bookkeeping is an extremely important practice of recording all the incoming and outgoing cash. Proper bookkeeping is essential for your business, no matter whether you are a growing business or a solopreneur. All financial transactions – including sales income, business expenses such as services, goods, payroll, customer expenses, and more – should be documented properly, and should be regularly updated in the bookkeeping records.
Previously, bookkeeping was a largely laborious task that involved physically recording all the information and details. Because of the internet and cloud-based tools, bookkeeping software has made the bookkeeping process a lot simpler. So much so that according to research conducted by Capital Counselor, companies using cloud-based accounting software may service more than 4 times the clients than companies not using these tools. To add to that, research conducted by Forbes suggests that cloud-based accounting software can help in achieving up to 50% reduction in labour costs. This makes one thing crystal clear – cloud-based accounting software helps in saving a lot of time and money.
Despite that, entrepreneurs face some common bookkeeping challenges and can employ some key habits to overcome the challenges. In this article, we’ll talk about both these things!
Common Bookkeeping Hurdles Faced by Entrepreneurs
Whether you are managing a growing business or working alone, your life as an entrepreneur will be a hectic one. Apart from doing all the critical things needed to keep your business afloat, you’ll also be responsible for back-end tasks like bookkeeping and such.
Since financial management inherently feels like a laborious and painstaking task, many entrepreneurs tend to let bookkeeping take a back seat, which causes them a lot of hassle in the long run. Bookkeeping should be well integrated into your business routines, and you should be regularly staying on top of your books. However, in doing so, entrepreneurs face many challenges. Some of the challenges include:
- Lack of knowledge of tax rules
- Improper cash flow management
- Issues with client debts and credit control
- Failure to reconcile financial reports
- Risks of financial frauds due to improper bookkeeping
- Disorganised important paperwork and receipts
- Misunderstanding of accounting data
The good news is that you can easily surpass many of the hurdles by adopting appropriate bookkeeping software. Furthermore, there are some habits that if you, as a business owner, adopt, you’ll hopefully be able to navigate your way out of these challenges.
Important Bookkeeping Habits for Every Budding Entrepreneur
Proper bookkeeping is beneficial and a necessity, especially considering the larger picture, including things like tax deductions, payroll, and such. Careless bookkeeping has cost entrepreneurs around the globe in more ways than one, and it has always been advised to stay on top of all your business finances to avoid any hassles later on.
Here are a few critical bookkeeping habits for you to employ!
Categorise all the transactions
Every transaction needs to be properly categorised and documented. This helps in catching more tax allowable deductions and making your life a lot easier if you get investigated. For example, an unmarked receipt for lunch might not mean much to you six months later – was it a team lunch or a client lunch? Make it ten such receipts every three months, and you have a pile ready forming. In such a scenario, properly categorising all the transactions can come in extremely handy later on and help you avoid extra investigative work that you would otherwise need to put in.
Organise the deductions
According to one of the golden rules of deductions, they must be both, common in your field of work and necessary to your business operations. So, for a writer, a pen would be an ordinary expense, but a £500 pen might not be “necessary”. However, even if a particular expense is both ordinary and necessary, you still might not be able to deduct tax on all of it. Make it a habit to update yourself with official guidelines that you can consult to properly organise all your deductions.
Make bookkeeping a routine habit
Bookkeeping is one task that easily falls by the wayside. That is why it is all the more important to make bookkeeping a habit and include it in your weekly/monthly/quarterly business processes so that none of the important financial information falls through the cracks. Try allocating specific days for bookkeeping, and perform the bookkeeping duties responsibly. Your business process should seamlessly include financial tasks like entering missing transactions, reviewing financial statements, reconciling bank statements, and making any major updates to your accounting or bookkeeping.
Choose a bookkeeping software
While it is a good idea to work on creating good bookkeeping habits, the truth is that bookkeeping software takes care of a lot of the manual tasks for you – so that you can focus more on the challenges that running a business brings. Cloud-based, automation-fueled bookkeeping software comes with all the features important to store, manage, retrieve, track, and organise your financial details. As a young entrepreneur, you should be looking out for good bookkeeping software for your business to help you handle the financial load.You can even find lot of different bookkeeping designs online in Google Docs, Mac and MS word etc
The importance of bookkeeping can not be overstated, especially for budding entrepreneurs. With the habits mentioned above, you will be on your way to having much better maintained financial books, which will help you during year-end tax seasons and month-end employee salary payments. Further, with proper insights into your books, you will also be in a much better position to make data-driven financial decisions for your business. So, get started with creating bookkeeping habits into your daily business processes, and see your business stay safe from any financial mishaps!
About the author
Katie Hoare is the Global Head of Practice Solutions at Dext. Prior to this, Katie spent 13 years in practice, specialising in small business development and focusing over the last 5 years on the digital transformation project for the 5 office firm. Katie spearheaded the navigation through the app marketplace, developing a tech advisory offering and getting the firm MTD ready. She then spent 3 years working for one of the worlds largest cloud accounting software businesses as a partner consultant and then practice solutions specialist, supporting and advising a huge number of accounting firms across the UK of all shapes and sizes to digitise their offerings and automate their processes to maximise capacity and develop their potential.