The Many Uses Of Bookkeeping

In my many years of bookkeeping, I have learned a thing or two about how this information can be used. When you boil it all down, the main reason for bookkeeping is to see how much money you have made. The tax office uses this information to work out much tax you have to pay. But financial records are also a valuable resource as a business management tool. You can use the information collected in your bookkeeping accounts to help with the growth, planning, and problem solving in your business.

To explain the bookkeeping process in very simple terms, every finacial activity trasaction that occurs in you business is recorded as a double entry. Bookkeeping jargon uses words like debit and credit, and that is usually as far as non-bookkeepers can get. What it means is plus and minus. Income is the money coming in, and expenditure is the money going out. A double entry will have a minus in the bank account, balanced by a plus in the expense account. Or, a plus in the bank account balanced with a minus in the income account.

Each type of income or expenditure is gathered into catergories, or accounts. Over time, you will be able to see how much of your income comes from each income account, and where your money is going in each expense account.

You can seperate the different aspects of your income, and track how much income is received form each category. It's important to know what the star of your business is. Being able to see what sells better than others will enable you to make informed decisions about what to promote, what to put on special, and possibly what to discontinue.

Another tool you can use is to examine the expense as a percentage of the sales. Tracking the expenses over time will enable you to see if your costs begin to rise above your projected profit margin, indicating a need to increase your prices.

As a problem solving tool: say, for example, you are having a problem with your freight costs. Looking at your accounts, you may see that the cost of sending your products is too high a percentage to be able to absorb the cost. Do you need to charge a separate delivery fee? Can you find a carrier that charges less, or re-structure you business to deliver the goods more effectively? Or another example, you may be negotiating a deal with a new service provider. Knowing what your average spend is, month in and month out, looking at possible bundling of services, will give you the power to negotiate with more confidence.

If you are not so great at maths, you may find yourself reluctant to rely so much on the figures. But one thing I have learned with absolute certainty is that numbers never lie. The answer to successful business will always come down to numbers. Finacial management is equally as important as marketing and operations, but even marketing and operations rely on numbers to work properly. It is a numbers game, and the best tool that you can have at your disposal is understanding of what numbers you need to be successful, or have someone who can explain it to you in terms you can understand.