- Are we making money?
- Should we make that new hire?
- What can we afford?
- Can we grab lunch after this?
Bookkeeping basicsThe foundation of sound financial processes starts with bookkeeping. The more your business grows, the more complex your bookkeeping will become and that’s when it’s time to get someone with some experience on board. We’ve taken over the accounting books from many businesses, and their bookkeeping has been all over the spectrum: some amazing bookkeeping, all the way to “I can’t believe they left you with the books in this shape.” It’s not something to take lightly as that bookkeeping and management accounting function is key to building a better business.
What is bookkeeping?Before we jump into the details of bookkeeping, it’s important to understand the chart of accounts. The chart of accounts is the list of every expense, revenue, asset, liability, and equity account where individual transactions can be classified to. It’s essentially the index for all your accounts. Every business’ chart of accounts will look a little different, but the important thing is that all financial transactions are recorded. And that’s bookkeeping. When someone is bookkeeping, they’re categorizing every single financial transaction that shows up on the business bank and credit card statements to a chart of accounts. We tend to work with our clients in developing a meaningful chart of accounts and the creditte team have even developed a standard “creditte-fied” chart of accounts for varying industries we specialise in. You want to keep your chart of accounts as relevant and streamlined as possible. Nobody needs to have four different accounts for different subscriptions or office stationery. We get it, everyone loves/needs varying subscriptions these days, but recording it all in one expense line is just fine (it’s the tracking categories that matter but more on that later!). After a period of time, as individual transactions are being recorded into their individual accounts, we sum up the accounts for the month/quarter/year and report the totals. Reporting on the sum of these accounts (i.e. just the total of each account) is a financial statement: it should provide a clear picture of financial performance for a business. Here’s an example.
How bookkeeping helps provide real-time financialsWith the introduction of cloud accounting software, user-friendly payment gateways, and other automation tools, businesses have the ability to automate tonnes of bookkeeping tasks, leading to faster turnaround times, increased efficiency, and real-time financial visibility. We live and breathe automation. The old adage of working smarter not harder rings truer than ever when it comes to bookkeeping. Here are a few examples:
- You can create “rules” in your accounting system for recurring transactions. When bank or credit card transactions are imported or downloaded, they can be auto-categorized to specific accounts, saving loads of time on the bookkeeping and data entry front.
- You can integrate an expense capturing app with your accounting system. When you come across an expense, whether a physical receipt or one in your inbox, you can have the expense app digitize it and publish it to your accounting system, creating a record of that expense with minimal effort.
- You can also use a tool like Zapier or Tray to integrate your accounting and bookkeeping software with any of the other apps you use to run your business.
Transparent KPIs and other benefits of real-time financialsYour business likely has key performance indicators (KPIs), important and unique metrics that can be tracked and measured to determine business performance. For example:
- Revenue growth
- Monthly sales bookings
- Net promoter score (NPS)
- Lifetime value of a customer
- Customer acquisition cost