Bookkeeping is a vital job in any business. This is true whether you do the work yourself or hire someone to do it for you. Without proper bookkeeping, your accounts will not be accurate. It involves systematically recording and organizing financial transactions and is a fundamental aspect of effective financial management.
Just as importantly, your business has a legal obligation to accurately record its accounts and file company reports to various authorities. So, it pays to get this right from the very beginning. Bookkeeping will help you do all of this – and will also provide you with useful insights into the financial health of your business.
Proper bookkeeping gives businesses a reliable measure of their performance. It also provides information to make general strategic decisions. This includes decisions related to budgeting, investments, pricing, and cost management. It further enables the tracking of financial performance over time. This includes monitoring revenue growth, profitability, and cash flow. With accurate records, you can identify trends and areas of concern, allowing for proactive adjustments to your business strategy. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical.
Many businesses do not hire full-time accountants to work for them because of the cost. Instead, they generally hire a bookkeeper or outsource the job to a professional firm. One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every cent spent.
Whether you are just getting started or an established business owner with a brilliant vision, you will need to implement some basic bookkeeping techniques. How you organize and document your finances is up to you. You can outsource the work to a professional bookkeeper, or you can do it alone. If you decide to do it yourself, it is important to ensure you have the necessary time, technical skills, knowledge and even software. Whatever you decide, note that you must keep adequate records of all business transactions.
It is essential for businesses to devote time and money to keep accurate financial reports. Ultimately, when you have a balanced bookkeeping system, you can rest assured that you also have an accurate indicator of measurable success. In doing so, businesses of all sizes and ages can make strategic plans and develop realistic objectives. Accurate bookkeeping also enhances a business’s credibility and makes it easier to secure loans or attract investors. If you plan to sell your business or seek equity investors, accurate financial records are essential for determining the value of your company. Prospective buyers or investors will want to review your financial history to assess the business’s worth. Timely payments and accurate accounting can strengthen supplier relationships and may lead to favourable terms and discounts. It ensures that employees are paid correctly and on time, helping to maintain morale and avoid legal issues related to wage disputes.
Accountants or professional firms who are tasked with the drafting of annual financial statements (AFS) usually start the process with a trial balance for a 12-month period. The trial balance is the summation of all transactions for the financial year. The detail of all transactions is then called the general ledger which is also essential for drafting of the financial statements.
If the monthly bookkeeping was not done accurately and up to date for the 12-months, your accountant(s) must then spend a large extend of time to correct transaction processing or even complete the processing for the full 12 months to finalise the necessary trial balance. This leads to additional costs at higher rates in most cases which could have been avoided if the bookkeeping was done accurately from the start.
Additionally, and eventually businesses must comply with SARS legal regulations and systems that govern their finances. Signed off supporting AFS are compulsory for submission when filing the annual tax return of a business in some instances.
These AFS must as a minimum contain the following:
- Statement of Comprehensive Income (Income statement);
- Statement of Financial Position (Balance sheet);
- Tax computation;
- Notes to the AFS.
Where errors or discrepancies occur when records where not kept accurately and even not corrected when the financial statements were drafted, it may lead to the verification or an audit of the financial statements by SARS. If transactions cannot be verified due to the lack of accurate bookkeeping it could result in potential penalties, interest, or even harsher sanctions by SARS.
In summary, it is evident that accurate and well-maintained bookkeeping sets a strong basis for sound financial management for businesses. It provides the necessary information for making informed decisions, staying compliant with tax and legal requirements, and ensuring the overall financial health and stability of the organization. Neglecting accurate bookkeeping can lead to financial problems, legal issues, and missed opportunities for growth and profitability.
If you have any questions, please do not hesitate to contact the team at FHBC: firstname.lastname@example.org