This is a collaborative post.
When you go into business, it can come as a shock to realise just how much of your work has nothing to do with making money. Admin tasks can become a real time sink, eating into the amount of profit you can make.
One of those admin tasks is bookkeeping, so it comes as some relief that this is one job can really help you make more money, more efficiently.
Keep Your System as Simple as Possible
Bookkeeping or accounting can be as simple or complicated as you need it to be. Your exact needs will depend on the size of your business, whether you have employees, your business model etc. Even if your business is a side hustle run alongside a regular job, you still need to do some basic bookkeeping so you know where you stand, and so you can report accurately to HMRC.
If you don’t know anything about bookkeeping, consider taking a professional course. There are various study routes depending on your circumstances, including higher level, work-based apprenticeships.
You can learn accounting online too, so you don’t have to disrupt your current lifestyle too much.
But assuming you have a system for keeping track of income and spending, learning how to analyse those figures can really help you control your cash flow.
What Your Numbers Can Tell You
When you keep careful records, itemising every transaction so you know just what items or services cost you or what they earned, you can discover your most profitable lines.
You can see where your time is going and what you’re paying for every business item or service. From there you can figure out what’s costing too much, what’s not making enough profit, or what you need to charge more for.
If you’re working on the computer, say in Excel or a similar programme, you can do automated searches to reveal information. But you can also do a manual search in a notebook if you’re still at the stage where very basic bookkeeping is working for you.
- Look for patterns of spending to figure out where you might be paying too much for goods or services. These patterns flag up areas where you should shop around for a better deal or price or renegotiate existing contracts.
- Monitor your sales. Which are the most profitable lines, and which offer you a lower return?
Anticipate Payment Deadlines
When you’re on top of how your money is behaving, you’re more in control of expenses.
By keeping your records up to date and detailed, you’ll have an accurate picture of when and how much upcoming bills will be and be able to prepare financially. Whether it’s a creditor payment, a tax bill, loan and card payments or annual renewals (such as website hosting) you can budget properly.
This is especially true when it comes to tax. Failing to prepare for your tax bill can have devastating effects on your cash flow, and even your ability to sustain the business. Knowing what your profit is, you can set aside the appropriate percentage for tax you’ll owe and have that money available to pay the bill without it causing too much trauma.
But it’s also true for paying vendors or suppliers on time, so you keep their goodwill and maintain or improve your business dealings with them.
Monitor Business Performance
Business performance is sometimes difficult to pin down because if you’re making enough profit each month you might think you’re doing well.
However, a good set of bookkeeping records or accounts can show you the value of each customer and let you determine their worth. Maybe you’ve never been busier, but the payment from each customer is low, for instance. Just being busy isn’t enough to indicate good business performance, and your records will let you highlight low-value activities. Once you know which business activities are not performing well financially, you’re able to do something about it.
All businesses can benefit from better bookkeeping, whether you’re a sole trading freelancer or CEO in your own company. Far from being one of those time-sink chores that give little back, learning accounting can lift your business to the next level.
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