Bookkeeping has been around since someone in Cleopatra’s court calculated that they were missing an asp. So you could be forgiven for thinking that this ‘dusty’ old process and those who practice it have limited value in the 21st Century Digital Age. You would be wrong. Almost as wrong as believing that slipping an asp down your blouse is a positive life choice.
Just to be clear, a Bookkeeper and Accountant are not the same thing. Both can be qualified and licenced, but a Bookkeepers role is manage the day to day records of a business including VAT and payroll. An Accountants role is to manage or inspect financial statements and advise on tax matters. Accountants can do all the work of a Bookkeeper, but a Bookkeeper can’t do all the work of an Accountant. The hourly price per hour of a Bookkeeper tends to be less than that of an Accountant.
The Bob Cratchit Method
Back in the day, to get its accounts in order the norm for a small business (SME) was undertaking the onerous annual trip to the Accountant armed with a box full of unordered receipts and invoices. At best, those documents would be accompanied by a rudimentary list of income and expenditure written down in a cashbook. All the ‘books’ would be dropped off with a sigh of relief knowing that they would soon be gathering dust at the back of the warehouse.
I have no shame in admitting that as a young impressionable accounts clerk, years ago, I relished the challenge of turning all that seemingly random information into a Profit & Loss and Balance Sheet via the medium of a spreadsheet. Way back then I was as driven by the same anticipation as the client to discover if they had had a good years trading or not.
In these highly competitive times, the old approach doesn’t ‘cut the mustard’. It is now an absolute must that SME owners have access to trading results in real time to enable informed decision making that could make the difference between the business surviving or going under. Also, the recently introduced ‘Making Tax Digital’ legislation, requires the use of computer software. So, it’s time to move on……
The Bob Cratchit Method
Back in the day, to get its accounts in order the norm for a small business was undertaking the onerous annual trip to the Accountant armed with a box full of unordered receipts and invoices. At best, those documents would be accompanied by a rudimentary list of income and expenditure written down in a cashbook. All the ‘books’ would be dropped with a sigh of relief knowing that they would soon be gathering dust at the back of the warehouse.
I have no shame in admitting that as a young impressionable accounts clerk, years ago, I relished the challenge of turning all that seemingly random information into a Profit & Loss and Balance Sheet via the medium of a spreadsheet. Way back then I was as driven by the same anticipation as the client to discover if they had had a good years trading or not.
In these highly competitive times, the old approach doesn’t ‘cut the mustard’. It is now an absolute must that SME owners have access to trading results in real time to enable informed decision making that may make the difference between the business surviving or going under. Also, the recently introduced ‘Making Tax Digital’ legislation, requires the use of computer software. So, it’s time to move on……
Hurrah For Technology
Technology has transformed all the old ideas of managing a SME. Bookkeeping no longer has to be the distasteful side effect that keeps you awake into the wee hours and only of any real value once a year.
These days, any number of brand variations of computerised desktop and online bookkeeping systems are easily available and eminently affordable for even the smallest of small businesses. Better than that, and just because they can, the mystique of double entry bookkeeping has been demolished by the click of a button as every daily transaction vanishes into computer coding and pops magically out the other side as entries in a Profit and Loss and Balance Sheet.
If that wasn’t exciting enough, many bookkeeping systems available offer the joy of automatic invoicing fully integrated with quotes, stock levels, timesheets and email and an automated bank reconciliation from uploaded bank statements. No more faffing around in the wee hours creating and misfiling bits of paper and getting a headache trying to keep on top of it all.
Keeping the books isn’t a core skill that SME owners need to have themselves, but can easily be delegated to a Bookkeeping service provider leaving them time to concentrate on delivering their product or service to their customers and focusing on winning new business. An online bookkeeping system and any internet connected device (PC, laptop, tablet and mobile phone), provides instant access to up-to-date key financial data and creating transactions. And. lest we forget, for most SME’s keeping digital records for Tax as well as VAT will soon no longer be a matter of choice.
The Power Of Information
It’s said that a little knowledge can be a bad thing, but that isn’t the case when running a business. Having valuable real time information at your fingertips means no more waiting a year to find out you should have done something different six months ago.
Good bookkeeping is the key and most computer software comes with dashboard reporting on everything important: available cash, sales values, money due in, money to be paid and profits all in real time. Reports can be created for any period from data stored in its memory with the same level of detail making it possible to examine trading comparisons and trends. The past is no longer something of a mystery gathering dust at the back of the warehouse. Any SME can keep its finger on the pulse and more importantly keep a control of cash flow.
Horses For Courses
Adopting the right bookkeeping system can be as important to running a business as selling the right product to the right market. While all bookkeeping systems are bound by the same concept first conceived over 2000 years ago, they do come with differing levels of complexity and useful options.
Many have options to suit businesses with specific bookkeeping and regulatory needs such as charities or legal practices and many are MTD approved. When choosing one to implement Its important to understand the needs of a business and any expectations of the near future.
The good thing about technology is that it can be upgraded. For a fairly modest charge most bookkeeping software aimed at SME’s are available in multiple levels starting at the most basic needs and levelling up to include more complex options. There is no excuse for being wooed into buying racing stables when you only have a Shetland pony. The ability to upgrade later as needs change means not having to invest more than necessary at a time when most businesses can’t afford to be free with their hard-earned cash.
There is a mind-boggling number of different bookkeeping and accounts software available. Some are free, though it may be wise to consider them carefully as they may have limited options, abilities to ugrade or available support. Others come with a one off fee or periodic licence cost. The range of costs is fairly wide within the ‘reasonable’ spectrum but, when thinking of hiring a bookkeeper, its worth considering signing up with a brand affiliated professional who may be able to offer a discount. It’s definitely worth doing the research, the link below will provide a starting point.
The Race Towards Success And Growth
In 2019 there were 5.9 million small businesses (SME’s) in the UK, a rise of 0.2 million from 2018. They represented 99.9% of the private sector and were a major contributor to the UK economy. 96% of small businesses were micro businesses employing fewer than 10 people. (source ONS)
Just to put that into perspective in 2019 there were only 8000 UK private sector businesses considered as large (employing over 250 people). Small does not mean insignificant, but neither does it mean that running a SME is an easy gig. The mortality rate is pretty sobering.
4 out of every 10 SME births will die before their 5th year of trading
According to Investopedia, the main causes of the failure of SME’s are lack of cash and poor management. Where having a working knowledge of bookkeeping is certainly not a required pre-requisite to starting a business, self-belief and commercial confidence are. We are all human of course and prone to human frailties and the qualities that drove the birth of a business can swing either way. Commercial arrogance is often cited as being the cause of the death of a business as much as poor management and lack of cash. Arrogance comes in many forms including making commercial decisions based on gut feelings and inflated self-belief; avoiding supporting information and not being particularly keen on mission statements. Click on the link for an interesting article on the subject from The Business Journals.
Commercial success very rarely arrives on the doorstep unannounced whereas failure has a nasty habit of appearing from dark unseen corners.
Even the most promising of SME’s need all the help they can get to succeed and grow and the best way of countering both commercial indecision or arrogance is up to date information. Its hard to argue with the reality of facts and figures, especially if they are readily available in real time via the medium of good bookkeeping.
So having said all that, there millions of SME’s taking part in the commercial version of the Grand National, all trying to keep their noses in front, leap the hurdles on the way and not be unhorsed in the process. They are all chasing success and growth, but its these factors that leaves them faced with commercial version of Becher’s Brook.
Success and growth has a natural ceiling, the point at which a business is trading at maximum capacity and effectively outgrows itself. The commercial version of Becher’s Brook is a wall of needs to be jumped to achieve the next stage of growth. The need for bigger premises, more staff, better technology, new equipment etc. are as often as not, stymied by a lack of cash and a business has to look for outside investment.
The ability to tap into real time financial reporting and trading statistics from a good bookkeeping system can provide some defence against Beech’s Brook looming suddenly from those dark corners. It can also take some of the pain out of securing outside investment.
Back in the day, this would mean another night burning the midnight oil, or a trip to the Accountant and waiting while they put the figures together. Any good computerised bookkeeping software gives easy access to any number of financial reports to show the current and past and the tools to project the future to reassure potential investors.
Rubbish In Rubbish Out
OK it’s an old trope, but in relation to technology in bookkeeping its perhaps more true than ever. All technology is flawless and amazing until you introduce the human element. Humans have a wonderful ability to occasionally accidentally screw up just about anything, generally through lack of knowledge.
Its at this point that I do a bit of shameless promotion in the name of the legions of professional bookkeepers of which I include myself. Very few SME owners, I’m sure, are blessed with a passion for bookkeeping, nor are they expected to. Yet good bookkeeping and the ability to make good, reasoned decisions is perhaps the main contributor to business success and growth. No business should be wary of investing in a good computerised bookkeeping system and someone with good, sound knowledge to run it.
The return on investment often goes far beyond cold hard cash.
Patricia Warde
pwaccounting.co.uk
Good decisions rely on good information
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