Why Bookkeeping Is Still Important in 2019
Bookkeeping has always been important since time immemorial. The history of bookkeeping is littered with examples of ancient governments and entrepreneurs who recorded their financial transactions daily. This can be traced back to ancient Mesopotamia, whereas early auditing systems are traced back to ancient Egyptians and Babylonians. Ancient entrepreneurs and governments alike, had one thing in common – they realised the importance of recording financial transactions regularly.
Most modern entrepreneurs are only equipped with the ability to run the operational and technical side of business, but often lack bookkeeping skills. After falling behind in their bookkeeping duties for months, they will relent and consult an expert. In most cases when they decide to do that, it will be a little too late. The business will be already bleeding money, creditors closing in on them or already experiencing a cashflow problem.
In 2019, the importance of keeping your books up to date cannot be emphasized enough. Proper bookkeeping will help you to track all financial information and make key operating, investing and financing decisions easily.
What is bookkeeping?
According to Corporate Finance Institute, Bookkeeping involves the recording, on a daily basis, of a company’s financial transaction. It provides two kinds of information: (1) the owner’s equity of the enterprise (2) the profit or loss taking place in the enterprise over a given period of time.
This is why bookkeeping is still important in 2019
A bookkeeper will help you track receivables/receipts and payables/payments so that you can identify if you are running your business at a profit/loss and take corrective action as soon as possible. You will also avoid a mistake made by most entrepreneurs who neglect bookkeeping - failure to manage all outstanding invoices effectively. When outstanding invoices are not properly managed you might find your bank account out of cash. Or even worse - see your business grind to a halt. Is that what you want?
The more your company grows, the greater are the chances of dealing with people with vested interest in the company’s financial results – namely shareholders. But before then, you will deal with other external users, which may include potential investors, SARS or banks.
Let’s look at each external user.
You have been conservative for the past ten years yet your financial results remain the same. You wonder if it’s about time your company gets some cash injection. Like most start-ups, there are times when you really need that, ‘R30 million capital seed’. An investment will not only ease up on the financial pressure, but also contributes towards growing your company faster.
Unfortunately, investors don’t just dole out funds like that to anyone.
Before they invest in any business, they spend time understanding the company’s financial situation. In relation to that, expect questions such as, “What is your company’s three-year projection? How many equities has the company raised so far? When will the company get to profitability?” And many more other questions.
How else would you answer any of those questions without having a proper bookkeeping system in place? If getting an investor is one of your primary plans, I would advise you not to approach any investor without making sure your financial transactions are recorded properly.
The bank will need a lot of information from you before granting you that “needed” bank loan for your business. Besides the bank asking for a collateral and the business plan, it will always ask for your company’s financial statements.
This is because the bank’s primary concern is whether your business is profitable enough to repay the loan. If you don’t record your financial transactions on a daily basis, there will be no way of furnishing a financial statement. That’s where a bookkeeper comes in.
Excellent bookkeeping will also help you prepare for filing for bi-annual provisional tax payments, bi-monthly/monthly vat returns and income tax submissions. Paying your tax early is important for any entrepreneur, because the earlier you pay, the less are the chances of paying penalties. For that reason, it is important that in 2019 you maintain accurate financial records. Make sure you employ an accounting firm that advises you on how to avoid paying additional tax penalties.
Taking your business from good to great without managing the account receivables and payables proficiently, may become just that – a fairy-tale. In truth, it will all depend on when you decide to hire an efficient bookkeeper. The sooner the better.
What are you waiting for? Reach out to one of our bookkeepers today.
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