BOOKKEEPING – THE WHY AND HOW FOR BUSINESSES
Have you ever wondered why investors, bankers, tax authority, lenders and companies ask business owners for their accounts before they transact business with them?
I grew up watching my grandma run a coral beads and lending business. My grandma was not educated, so I always get very surprise when she remembers exactly how much each borrower owes and the last time they paid from their loan. More surprising is that she knows exactly what was in her stock and when she needed to replenish her stock. One day, I saw her recording her activities for the day, then I understood the source of the ‘superpower’ of my grandma was bookkeeping. You dare not steal from her; she will find out. She was so successful that she expanded are trade to other commodities, single-handedly built sets of self contains for rent and went on to build a tasteful house for herself.
What is Bookkeeping
Bookkeeping in simple terms, is recording financial activities to facilitate recalling, reviewing, monitoring and analyzing. For bookkeeping to be effective, it needs to be able to provide useful information to the users of the records. Business owners are constantly making decision about their business, they need reliable information to base their decision on. Some decision can be so important that it can influence the sustainability of the business, in the near future. Whether we realize it or not, businesses are set up to make profit. The business owners can determine if the business is making profit or loss, product/service pricing is correct, and the business is growing; when it keeps complete and correct information about its financial activities.
How to have effective Bookkeeping
By now it is clear that every business no matter the size needs to keep their books. The question now is how to keep your books.
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Automate your bookkeeping: My advice to businesses, is to use an automated bookkeeping system. It can be as simple as a Microsoft Excel application or an
accounting software. The size of the business should inform the decision of which option to go with. A business with few transactions monthly can choose to settle for an excel bookkeeping format but should also note that excel can basically give totals but cannot generate financial reports.
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Outsource to a professional accountant: A small business might want to consider outsourcing their accounting if they are not skilled enough to understand the implications of the numbers or cannot be consistent in recording and analyzing their books by themselves.
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Use simple accounting software: To use an accounting system, one needs to have the foundational knowledge of the principles and concepts of accounting, and not all business owners have that knowledge. It will be a waste of resources, for a small business to invest in accounting software and not being able to use it efficiently. It is therefore cost effective to get a simple accounting software to manage the business books of a small business until the business is financial able to get office space, equipment and consistent salary for an accounts staff.
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Determine your information needs: Before a business owner decide on their bookkeeping structure/format, they need to be able to determine the kind of information they want to get from their books. If business owners want to know which of their products generate more sales, if they are ready for a new staff or how much investment is needed for the next level of their business, they need to include tracking heading for them, in their bookkeeping structures
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Determine who the bookkeeper would be: Another point to note, when deciding on a bookkeeping structure is who will be recording and reviewing the books. The question is if the business owner will be recording the transactions themselves or outsourcing it to a staff/an accounting firm. If the bookkeeping is to be outsourced, the business owner needs to make available important information to the staff/accounting firm. For example, the entrepreneur will need to notify the staff/accounting firm about the nature of their business, types of income, classes of expenditure, seasonality of your business and the operational activities. This information will let them know how to record the transactions and determine the kinds of reports that they can prepare for management use
In conclusion, bookkeeping is the life blood of any business and a business without a bookkeeping structure is one not ready to do business. Did you think about my introductory question? Well the is your accounts tells the users about the financial management style of the entrepreneur and the financial strength of the business.
WRITTEN BY:
Olubunmi Omonubi
MD/Accountant
Jotda Elevated Services (Accounting Nsync)
Tel: 08087505657