Sales invoices and expenditure are almost certainly a part of your business that you know pretty well. Even so, the greater the number of transactions in your business, the more complex it is to track all your sales and expenditure accurately.
As part of your annual business financial reporting, it’s imperative that you have accurate records that comply with the Financial Reporting Standards that apply to your business.
What is it? Put simply, this is a list of all sales invoices issued in a specific accounting period and a list of all expenditure for the same period. However, ensuring you record invoices and expenditure in the correct financial year can get more tricky than it sounds.
For sales invoices: the date on the invoice doesn’t necessarily dictate which financial year it should be filed under. For example, if your financial year end is 31st December you may invoice a customer that day for services in advance. As the work won’t be done until the next financial year, this should be reported in that year. Not the current one.
Likewise, if you have sales where the work happened in this financial year, but won’t be paid or perhaps even invoiced until next financial year this should be reported in your current financial year.
The same applies for expenditure. For example, do you have any services you pay for in advance? You may have annual, quarterly and monthly bills and you need to make sure you’re reporting only the portion of the charges that apply to the relevant financial year.
Don’t worry if you find it confusing! That’s where a bookkeeper can help!
Why do it? Firstly as mentioned above, all businesses are required to comply with the Financial Reporting Standards. For our clients this is usually FRS 102 or FRS 105. Your reporting must be accurate and not misleading about your business’s financial position.
Secondly, it helps you to have more accurate records. To be able to compare business performance year on year, you need to have comparable records. Otherwise you could see an increase in income that isn’t real (leading you to over extend your business in the next year). Or you may make your finances look worse than they are, meaning that securing finance for your business will be harder or you’ll be unable to pay as much in Director’s dividends as you planned.
In general any financial reporting that doesn’t seem to make sense, or doesn’t seem to be consistent from year to year will raise alarm bells with any investors or finance providers. It may also be picked up by suppliers or anyone else you want to do business with, particularly if there is any kind of credit agreement involved.
How can a bookkeeper help?
Setting up systems that keep track of all your transactions, when they happened and what time period exactly they fall into to is what bookkeepers do. A good bookkeeper will ensure you keep all your records updated as you go along so you don’t have a big mess to unpick just before your financial year reporting deadline.
Your bookkeeper will also be able to use your sales invoice and expenditure records to create forecasts and management reports. These will help you to plan ahead, see where you can grow your business and how to maximise your profits. Different businesses need different kinds of management reports and your bookkeeper will understand how your individual business operates and easily figure out what you will actually find useful.
Are you getting enough from your financial reporting at the moment, or could you get more support with financial decisions from clearer forecasting and reporting? Team4 Solutions are always happy to have a no obligation chat, so why not get in touch with Diane on 01825 763378 or firstname.lastname@example.org to see if we can help?