Why bookkeeping for your own business matters so much

Bookkeeping is the day-to-day recording and tracking of your business's financial transactions. Bookkeepers regularly summarise that activity into reports that show how the business is actually doing, and when the underlying record-keeping slips, it tends to show up as one of seven very predictable problems.

The 7 bookkeeping problems to avoid

1. Breach of company law requirements

If you run a limited company, the directors are legally and personally responsible for ensuring annual statutory financial statements are prepared. Falling behind on bookkeeping through the year makes this far harder, and more expensive, to put right at year-end.

2. Backlog of documentation and processing

Once invoices, receipts and bank transactions start piling up unprocessed, catching up becomes a project in itself, and the risk of errors creeping in rises with every week that passes.

3. A higher rate of bad debts

Without clear, current visibility of what customers have been invoiced and what remains unpaid, overdue invoices tend to drift, and drift turns into bad debt.

4. Late or inaccurate VAT returns

Submitting bi-monthly VAT returns should be business as usual, not a stressful scramble in the final week. Rushed returns lead to errors, and disorganised purchase records mean businesses regularly miss out on VAT they're entitled to reclaim.

5. Legal action or breaks in supply from suppliers

Late or missed supplier payments, often simply because nobody had clear visibility of what was due and when, can escalate into supply breaks or legal action, both very avoidable with proper records.

6. No knowledge of available cash or control over cashflow

This is often the most damaging problem of the seven. Without up-to-date bookkeeping, you're making decisions, including growth or funding decisions, without knowing your actual financial position.

7. Higher accountancy fees

Late or error-strewn bookkeeping makes VAT returns and end-of-year accounts more time-consuming to prepare, and that additional time is generally reflected in higher accountancy fees.

The financial reports every business owner should understand

Good bookkeeping feeds four reports that tell you how your business is actually doing:

• Profit & Loss | your business income alongside all the costs of running it, showing whether you're making a profit or a loss.
• Balance Sheet | a snapshot of what the business owns and owes, and used to confirm your bank accounts are properly reconciled.
• Aged Creditors | what's due and payable to your suppliers, as at the date of the report.
• Aged Debtors | what's due and payable by your customers, and how long each amount has been outstanding.

A quick glossary of bookkeeping terms

A few terms worth knowing if you're reviewing your own numbers or talking to your bookkeeper:

• Debtor: a customer you've invoiced who hasn't paid yet.
• Creditor: a supplier who's invoiced you and hasn't been paid yet.
• Business expense vs supplier invoice: an expense is a small, out-of-pocket cost (debit card or cash, little or no VAT, no formal invoice); an invoice is a formal document from a VAT-registered supplier for a larger cost, usually paid within agreed credit terms.
• Petty cash: a small fund kept for minor office costs, tracked with receipts as proof of purchase.
• Director's loan: money taken from the company account by a director that isn't salary or dividends.
• Payment on account (POA): a part-payment against a supplier invoice, before the balance is settled in full.
• Bank reconciliation: confirming that every transaction in your bank account has been accurately recorded in Xero or QuickBooks, so the two balances match.

The Sakura best-practice monthly bookkeeping process

This is the process we run for clients every month:

• Step 1 : Prepare all sales invoices to customers for the month.
• Step 2 : Obtain and input all supplier invoices and receipts (purchase invoices).
• Step 3 : Import all bank transactions and reconcile them: match to a suggested invoice, find the correct matching invoice, or create a new bank transaction.
• Step 4 : Confirm all current, savings, PayPal, Stripe, GoCardless and other accounts are reconciled and match their bank statements.
• Step 5 : Resolve any suspense or unidentified transactions.
• Step 6 : Post any other entries, such as salary journals from payroll reports.

Frequently asked questions

What's the difference between bookkeeping and accounting?

Bookkeeping is the ongoing recording of day-to-day transactions: invoices, payments, receipts. Accounting takes that data and turns it into statutory accounts, tax returns and financial analysis. Good accounting depends on good bookkeeping underneath it.

How often should bookkeeping be done?

Monthly at a minimum, following a consistent process like the one above. Bi-monthly VAT deadlines and the risk of losing track of customer and supplier balances make an annual catch-up a genuinely risky approach.

Can poor bookkeeping really lead to legal problems, not just admin headaches?

Yes. Two of the seven problems above, breaching company law requirements and legal action from unpaid suppliers, are genuine legal risks, not just inconveniences.

Take the next step

If any of these seven problems sound familiar, get in touch and we'll talk through what outsourcing your bookkeeping would look like for your business.