Business bookkeeping is the process of recording the financial transactions that are made in a business. Maintaining accurate financial records is beneficial for ensuring that companies stay on track, however it’s also a requirement. In short, business bookkeeping is a key part of ensuring success and preventing failure. With this in mind, let’s take a closer look at why it’s so important to stay up-to-date on your company’s financial records.
Fulfilling Tax Obligations
Without maintaining up-to-date business bookkeeping throughout the financial year, it can be incredibly difficult to file accurate tax returns. Incorrect payments could result in demands for payments with high interest rates, and put pressure on cash flow. Filing tax returns is an essential part of running a business, and so it’s vital to stay on top of this by keeping up to date with bookkeeping.
Meeting Legal Requirements
Under the Companies Act 2006, it is the duty of every company to keep adequate accounting records. This includes information on transactions and records of assets and liabilities. It’s crucial that at any point HMRC can audit a company’s finances to gain a reliable picture of whether the business is paying adequate tax, wages and national insurance.
Improving Cash Flow
Poor cash flow is one of the main reasons that companies fail, and so it’s crucial to keep an eye on cash flow, and strengthen it where possible. Business bookkeeping plays a vital role in this. Keeping track of how strong cash flow is enables you to carry on strengthening it, or take action to prevent the company from failing if you spot that cash flow is declining.
Enhancing Planning & Growth
Analysing financial records is essential for making accurate predictions for growth. Directors and shareholders will need to rely on their business bookkeeping in order to decide how to expand, invest and budget without risk. This also allows them to make realistic targets for growth.
Avoiding Late Payments
Business bookkeeping is also important for ensuring that liabilities are paid on time. Falling behind on payments can easily result in penalty fees being applied, as well as damaging relationships with creditors and other parties involved in the business. Staying organised ensures you keep on track of essential payment dates.
Preventing Personal Liability For Directors
Another important aspect of maintaining business bookkeeping that is often overlooked, is its role in protecting directors from becoming personally liable for company debts. Directors of limited companies are protected from personal liability by the ‘Corporate Veil’. However this can be broken if directors fail to maintain accurate financial records .In insolvency, the conduct of directors may also be brought into question. In this case, inaccurate financial record keeping could put them at risk of disqualification.
In summary, maintaining accurate business bookkeeping is not only an obligation, it’s also crucial for ensuring stability and enhancing growth. Crucially, it allows companies to spot signs of financial difficulty early on, and act accordingly.
If you are concerned that your company is struggling financially, please don’t hesitate to get in touch with our experienced team at Ballard Business Recovery.
