Bookkeeping and accounting are often interchanged when we speak about business finances, but they’re actually two very separate functions. Bookkeeping is financial record-keeping. Accounting is the interpretation of those records and the advice on how to implement that data into your planning and strategy so that you achieve business growth. Bookkeeping is essential for accounting, it is also almost pointless if you don’t follow it up with accounting.
Accounting methods: cash versus accruals
Most businesses work on a cash accounting method, but this isn’t always the best option. You need to decide between cash and accruals with your accountant, based on your company goals, your business structure, and the manner in which you operate. A cash system is straightforward, it means recording any money coming into the business once it has exchanged hands, and similarly, recording any cash leaving the business. Accrual, on the other hand, records the money when the income is earned even if the client hasn’t paid as yet. For this, your bookkeeping will require you to record “accounts payable” and “accounts receivable”. Cash record-keeping might be fine from a compliance perspective, however, it doesn’t provide an accurate picture of the financial health of your business.
Tracking the movement of your money
Know if your cashflow is healthy? Do you have a good influx of new leads each month? Is your business profitable and able to keep its expenses covered? You can establish how healthy your cashflow system is by analysing the movement of your money. Your accountant will look at this to help you plan a strategy for growth based on your current financial data.
If you are serious about growing your business, invest in cloud-based accounting software. It will allow you to track the movement of your money in real-time and establish how healthy your cashflow is. Market-leading software solutions link directly with your bank and have the ability to capture data from bills, matching the bill to the payment and storing an electronic copy of the bill. It makes the tracking of accounts payable a breeze. On the income side, invoices are created in the software and automatically matched to the bank deposit. This eliminates paper, speeds up the processing of financial data giving you real-time information for informed decision making.
Consistency is important when it comes to maintaining a financially healthy business. Your bookkeeping processes must enable you to keep up to date records as easily as possible. When a task becomes easy, you are more likely to remain consistent with it. As you get started on managing your finances, take a few hours each week on a regular day (pick a date and time you can commit to each week) and use it to catch up and;
- Pay bills and vendors.
- Prepare and send invoices.
- Reconcile bank accounts.
- Review outstanding invoices.
- Review overall financial health.
Financial reports give you insights to plan your next move in business. They can help you to plan your strategy and implement new processes that strengthen the integrity of the business as a whole.