Isn’t bookkeeping just another word for accounting? Not at all. Fundamentally, entrepreneurs and newly formed SMEs must understand it’s not a skill that can simply be delegated to any staff member. The discipline requires a certified bookkeeper who has practised in the financial industry and is fluent in managing bookkeeping software. Let’s start with the basics.
What is bookkeeping?
Bookkeeping is a specific job falling within the scope of accounting in which the core performance areas (KPIs) include
- Recording financial transactions.
- Producing invoices.
- Maintaining and balancing current accounts, general ledgers and historical accounts.
- Completing payroll.
As mentioned above, one of the central tasks of a bookkeeper is managing the business’s general ledger.
What is a general ledger?
A general ledger is a primary document where bookkeepers store all the business’s financial records, expenses, receipts and invoices. The recording of information in the ledger is known as posting. So, it can be deduced that the more sales that are made or business expenditure that occurs, the more often the ledger will be posted.
What is accounting?
Accounting, on the other hand, can be defined as the broader scope under which bookkeeping exists. Accountants provide you with the data your business needs to make informed financial decisions. They also review financial reporting and performance, then report the information to the relevant people such as the chief financial officer (CFO).
Business owners depend on these financial reports for updates on its performance and to ascertain whether it meets the forecasted revenue growth goals. As your business expands, you may acquire shareholders and investors who will have a vested interest in the financial report’s data. Therefore, the reports must be accurate.
Accounting core tasks include but are not limited to
- Preparing company-wide financial statements
- Analysing the costs of operations
- Calculating and submitting of provisional tax returns
- Completing company income tax returns
- Assisting the business owner(s) in fully understanding the impact of financial decisions based on collated data.
- Monthly/quarterly management accounts which will help business owners have a better understanding of the companies financial position on a continuing basis.
Can bookkeeping and accounting work in synergy?
Once the difference is understood and any perceived bias is eliminated, the two separate entities need to work well together; their contribution has a significant impact on the business’s financial success. For example:
The accountant needs to organise all financial records properly and balance finances accurately. Therefore, the information supplied by the bookkeeper must be correct.
If not, all figures will be incorrect, which puts the business in a reactive, frenetic state because performance can’t be gauged. Therefore, a strong relationship between the two is necessary. They can help your business rise to the next level. That’s why it’s vital to have expert bookkeepers and accountants in charge of your financials.
The practical benefits of professional accounting and bookkeeping services
It helps your business budget effectively
A realistic budgeting strategy forms the bedrock of your holistic financial plan. Every fund allocation should have its own sub-strategy outlining exactly how it’s being spent. For example, if you’re allocating R50,000 to marketing, ensure you know the exact amounts being spent on each line item, such as paid advertising, SEO, copywriting etc.
If you’re a start-up, it’s likely that you’ve raised capital through seed funding, which usually is acquired from private sources. Even though the money may have come from family and friends, they will want to know how their money is spent. If you waste it, you’re putting your business and personal life in jeopardy.
A professional accountant and bookkeeper become even more essential when you move into series A, B and C funding. At these stages, shareholders and investors are investing large amounts of money, and the accuracy of the financial statements can determine whether you’ll receive more capital or complete disinvestment.
Investors and shareholders want to see reports that clearly show how the business is performing. It takes professionals to distil all those figures to save investors and shareholders’ precious time.
Tracking growth and cashflow
Is your business making a profit and hitting your revenue growth goals? Does your business have sufficient cash flow to pay salaries of employees and creditors on time? The answers to these questions are found in your financial statements.
- Bookkeeping provides information regarding your outstanding invoices – customer/vendor name, amount, date issued and due date – which can be used to implement better cash flow policies.
- Your income statement will reveal whether you’re making a profit or not – this statement should be prepared by a certified bookkeeper. It would then form part of the company-wide quarterly financial reports compiled by an experienced accountant.
By hiring a professional business consultancy with access to bookkeepers and accountants, you’re ensuring your finances are in good hands. This will give you much-needed peace of mind and provide you with time to focus on growing your business.
In a previous article, Fio founder and CEO Ajay Wasserman gave his insights on the importance of personal budgeting. Please read the full article here.