Part 1 – Essential financial information for a landscape gardening business owner
In this series of three blogs, we will explore in detail the financial information of a business. A business owner cannot make well informed decisions for their business until their finances are in order. The areas we will cover are equally important as they serve different purposes. The three areas are:
• Management accounts
• Statutory accounts and corporation tax return
In our first blog, we will cover bookkeeping and explore what it is, why it is important, and the purpose it serves.
Bookkeeping is the financial foundation of a business and is key to a business owner ‘knowing their numbers’. It provides the information required for management and statutory reports. Given its importance, keeping accurate records of the financial activity of a business is imperative. If the records are incorrect, the reports will be too and as a business owner, you will be making important decisions based on inaccurate information.
To produce the books for a business, a bookkeeper will enter the business transactions relating to the financial activity of the business onto accounting software, such as Xero a cloud-based tool. For example, sales invoices will be raised and can be emailed directly from the software, purchase invoices and receipts will be entered and categorised accurately, petty cash receipts and expenses will be entered, as will payroll information and taxes.
The next step for a bookkeeper is to match all payments received by the business with the transactions entered on the accounting software. It is important that this is done accurately as it shows the customers who have paid, and which sales invoices remain outstanding. Helpfully, with online accounting software, automatic reminders can be set up to chase outstanding invoices. This process will help improve cash flow. It is important for a business owner to ensure there is enough cash in the business to cover overheads, expenses, and wages. The only way to do this is by ensuring the bookkeeping is kept up to date regularly.
Those business owners who need more in-depth management information, such as the profit and loss of a particular project, can take advantage of a tracking feature on the accounting software. This can produce extremely informative data which can direct future strategies for the business, however, it can be more time consuming as the bookkeeper needs to assign a tracking code to each transaction.
When setting up a new business, some owners will attempt to do their own bookkeeping. However, it soon becomes apparent that the expertise of a professional bookkeeper is needed as it can be a complex area, driven by many different processes and procedures. Done properly, qualified bookkeepers can complete the work to the highest standard, and importantly, do it in a timely manner so the financial information is ready to be analysed by the business owner when it’s relevant.