Bookkeeping is an essential business function in all businesses. Whether your business is a startup business or an established business, the need for accurate and timely bookkeeping and business finance management should not be underestimated.
In Episode 8 of the Small Business All Figured Out podcast, Corinne Cole and Sheryl Cole talk about what bookkeeping is and why it’s important to your business.
To listen, click play below.
We’re business accountants in Melton who work with Australian small businesses, including startup businesses. We know from experience, that the key to business success lies in the accuracy and timeliness of your business numbers; because, what gets measured gets managed. A well managed bookkeeping system will give you a competitive advantage in business.
What is bookkeeping?
Bookkeeping has traditionally been thought of as the routine recording of the daily financial transactions and information of a business. Many business owners think of bookkeeping as a mechanical and repetitive process of ‘data entry’ that almost anyone can do. This couldn’t be further from the truth in this day and age. It’s a misunderstanding that causes a lot of business owners to think that they can do their own bookkeeping without any problems or difficulty.
But data entry is not the extent of ‘true bookkeeping’. With the technology that’s available In today’s world, data entry is such a minimal part of the bookkeeping services needed by modern business.
Bookkeeping is about understanding how a business works and providing accurate figures that enable you, as the business owner, to know exactly how well your business is performing and knowing what your next move should be so that you can stay ahead of your competition.
How bookkeeping has evolved over the years
Now for a little bit of bookkeeping history. Bookkeeping was a concept that was invented around 500 years ago – by a monk named Luca Pacioli. He devised the double-entry bookkeeping method that we still use today – even with the advent of cloud accounting software such as Xero. Prior to that, financial records were maintained with clay tablets and abacuses!
In slightly more recent times, but before computers were mainstream, bookkeeping involved manually created ledgers, charts of accounts, and a tedious double-entry system. Transactions were essentially recorded in a number of actual books, hence the expression “keeping the books” or “doing the books”.
Since computers and computerised accounting software, bookkeeping has progressed from being a very manual and time-consuming task focused on data entry, to an efficient business function. Bookkeeping in today’s businesses allows for a greater depth of business analysis and insight. This is all thanks to advances in technology, including cloud accounting software such as Xero.
What is accounting software?
Accounting software was designed to eliminate the need for knowledge of ‘double-entry’ bookkeeping. This made bookkeeping tasks that little bit easier for the ‘lay-person’. With that, accounting software providers tend to market their products in a way that has business owners believing that they can take care of their own bookkeeping and related tasks such as BAS preparation. However, as accountants who work with Melbourne businesses, it’s rare that we see a perfect set of financial records produced by a non bookkeeper.
If you’re serious about your business, we strongly recommend that you take advantage of the knowledge and efficiency of a qualified bookkeeper or accountant. If hiring the services of a bookkeeper just isn’t an option for you right now, we strongly recommend you do a Xero training course.
When accounting software, such as Xero, is used correctly and managed by an experienced bookkeeper, accountant, or an adept Xero user, it records and processes financial data efficiently in a way that enables seamless and timely business reporting. Accounting software like Xero also enables management of other common financial areas of your business such as inventory, payroll, superannuation reporting, TPAR reporting etc.
Do spreadsheets count as accounting software?
When we talk about ‘accounting software’ we’re talking about accounting software products such as Xero, Quickbooks Online and MYOB that are designed to handle the full bookkeeping function. Spreadsheets just don’t cut it as a business bookkeeping solution.
While spreadsheets do have advanced functionality, they can’t produce meaningful real time reports or provide time-saving features such as bank feeds, bank rules, and ABA files.
What does the modern-day bookkeeper do?
The role of a bookkeeper in modern business is not just about historical data processing. In fact the title of bookkeeper is outdated in our opinion. A bookkeeper’s role is better described as “integrated business systems management”.
A bookkeeper will help you to:
- Improve your business systems
- Integrate technology into your business – think integrated apps and add-ons
- Automate your business information
- Understand how well your business is tracking by giving you certainly around the numbers.
The benefits of professional bookkeeping
Working with an experienced bookkeeper will benefit your business in the following ways:
- Allow you to stay focused on what you do best within your business. You didn’t go into business to become a bookkeeper, so it’s best to leave that to the bookkeeping experts.
- Enable you to grow your business by providing accurate financial information which you can use to drive good business decisions
- Avoid tax penalties. When you team with a qualified bookkeeper they will ensure that that tax obligations, payroll and superannuation obligations are correctly reported.
- Devise accurate and meaningful business budgets
- Forecast cash flows by identifying trends so you can manage outgoings in your business at the right times, including tax obligations.
Accurate bookkeeping translates to a competitive advantage
Being able to access accurate numbers and financial reports when you need to make business decisions is your competitive advantage. You will know with confidence that you have the cash flow to back those decisions and not run into financial difficulty.
And if the numbers aren’t tracking as you’d hoped, then you’ll be in a position to quickly pivot in a different direction. Access to real time data means you can make executive decisions to help profitably pave the way forward in your business.
What isn’t measured isn’t managed
Give careful thought to how you will manage the bookkeeping and financial function within your business. Consider whether you will engage the services of a qualified bookkeeper to help you – being mindful of the advantages a great bookkeeper can bring to your business.
However, if you are planning to do the bookkeeping and finance function yourself, we suggest that you:
- Use cloud accounting software in your business from day one
- Learn how to use Xero software by doing a Xero course
- Engage a bookkeeping professional to help you devise comprehensive standard operating procedures specific to your businesses bookkeeping and finance requirements
- Use the services of a bookkeeper or accountant review your data, at least quarterly, to detect any errors and to review your financial position.
If you need help with your business bookkeeping or Xero accounting software training, get in touch with our Melbourne Accountants and Xero Certified Bookkeepers on (03) 9746 6479 or learn more about our bookkeeping services here.