What Is Bookkeeping And Why Do You Need It?
If you don’t keep accurate records of your financial transactions, how do you expect to be able to file the correct submissions for taxes or meet your compliance obligations as a Director of your growing company?
It’s pretty essential. Let’s take a look at what bookkeeping for a product based business is really all about, and why you need it.
What is Bookkeeping?
Bookkeeping for product based businesses is the day-to-day recording of all the financial transactions for your business. In the old days, these transactions used to be recorded, by hand, in big physical paper ledgers or "books" - hence the terms "keeping the books" - but today, nearly all businesses keep their financial records in an accounting software package or excel spreadsheet.
Bookkeeping is a series of activities which ensure that your records for each and every transaction that happens in your business, are captured, recorded correctly, are up-to-date and evidenced. Accuracy is therefore essential. Timeliness of your bookkeeping process is important too.
So, Bookkeeping for eCommerce and product based businesses covers the recording of things like your purchases, sales, and payments - these are all part of the bookkeeping process. When you are "doing your books" you are recording the financial health of your company and this process helps you as business owner make smarter decisions about how to grow your business.
Generally speaking, there are five different types of areas covered by bookkeeping.
- There are the sales and other income that your business earns - this is money you make from selling your product or offering your services to customers.
- Then expenses - all the things you spend money on - this is money that leaves your wallet / bank account and the process of bookkeeping also records exactly how you pay for them (bank account, credit card, paypal etc).
- There are your assets, which are resources or items of value owned by your business - like property and equipment, cash, inventory and people who owe you money (debtors).
- There are liabilities, which are your obligations to banks, suppliers or lenders - like overdrafts, suppliers who you owe money to (trade creditors) and long term loans.
- And then finally, equity, which is the value of the shareholders interest / share in your business.
What is a Bookkeeper?
A Bookkeeper for product based businesses is the individual tasked with the successful capture, update and maintenance of your books. The bookkeepers role is responsible for adding all of the information necessary to the books in a detailed, chronological order - ensuring accuracy at all times.
What is the difference between Bookkeeping and Accounting?
The two are very different.
Simple bookkeeping at it's most basic is all about the administrative process of recording your financial transactions for your product based business. Capturing all of the ins and the outs, on each day, from each bank account. Its the movement and financial flow of your business carefully written down as transactional line items. Bookkeeping can be performed by the business owner if your business is small enough but many business owners prefer to outsource this work to professionally qualified bookkeepers. This is especially true as your business grows and transaction volumes increase. Some of this administration work can even be automated or greatly simplified with the use of technology and handy apps.
Accounting is about the process of reporting financial data in a meaningful way, classifying that financial data correctly, interpreting the financial data, and analysing your financial data. It has deeper levels of complexity and sophistication. There are professional standards and rigorous rules for Accounting tasks, adhered to and normally administered by qualified Accountants, to ensure accuracy. Accounting is about a professionally qualified person representing a true and fair view of the numbers to anyone who reads the set of accounts for your business.
How To Keep Your Books
Thankfully, keeping your books is not a difficult task and there are plenty of professionals qualified as both Bookkeepers and Accountants, like us, who you can happily outsource all of this work to. There are a handful of things that you need to do each day, each week and each month, which we have written about here in our blog Ecommerce Bookkeeping Basics: How To Keep Records For Your Product Based Business. It's can be summarised in a very easy three-step process. Let’s take a look.
- Make sure that you maintain and update your financial records. This is the first part of bookkeeping.
- Keep a close eye on what everybody involved in your business is doing financially, and make sure that you keep track of it. If something is spent, it needs to be logged and registered.
- Know your limits - If you are looking to grow your business it's a good idea to take a look at using a professional bookkeeping service to help you accelerate your internal processes, reduce that admin burden and automate where possible. To grow you've got to free up your precious time and this is the perfect place to start. We can help with that. We are really good at helping you save time, stay organised, and reducing your admin stress.
Make It Happen In Your Business
Bookkeeping is a process that every business owner, whether you're a fresh start up or established, has to try and get their head around. Of course, naturally some business owners enjoy the process of bookkeeping more than others but with a bit of dedication to learning the basics, a willingness to outsource when the time is right and a good advisory team to support you on your business growth journey, you'll do just fine.
- Ask yourself - Are you recording all the financial transactions in your business correctly? If your books were audited today, how confident would you feel that they were up to date and accurate?
- If you would like our help to take this weight off your shoulders, save you time and give you peace of mind that your books are accurate and up to date, schedule a call to see if we would be a good fit for you and your business.
Grab Your Free Guide:
5 Wildly Effective Growth Strategies
This guide will walk you through our proven steps to get your product selling, creating a global footprint for your brand.
We hate SPAM. We will never sell your information, for any reason. You can unsubscribe at any time.