The process of record-keeping has traditionally always been done physically. This involves putting ink to paper and placing these documents into a safe place to be returned to later. This has tended to be how bookkeeping works too. It entails setting up an organised system that serves to ultimately keep track of all funds that go into and out of a business.
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Despite how timeworn and fool-proof it may seem, physical record and bookkeeping is not an infallible practice. Things get lost, damaged, or misplaced often, and it can be hard and stressful to keep track of so many important documents for so long.
A seemingly much better way to keep your businesses books has arisen over the last fifteen years. Much like most things in the twenty-first century, bookkeeping has gone digital.
Digital bookkeeping offers a new way of keeping documents safe and easily accessible to those who need it. Is it a perfect system? Well, no, but is anything? Digitising your books can come with its own set of problems too, which we will discuss further in this article.
Now, this throws into debate an age-old question – Which should you be using? Physical? Digital? Or both? This article will answer any questions you have on this front and help you decide the next move for your business!
Digital Bookkeeping
The shift over to digital bookkeeping has been beneficial for many businesses. The benefits include:
- Accessibility – Digital bookkeeping means that you can connect from anywhere and access your files, especially if you are using bookkeeping software or Google Drive. It also means that other employees of yours, such as your bookkeeper or accountant, can easily access this information with less hassle.
- Low-cost – It can be more cost effective in the sense that you don’t have to spend money in printing, paper, or document maintenance. You also don’t have to worry about finding physical space to keep anything, as it is all online.
- Real-time updates – You can actively keep your books and financial history up-to-date easily and efficiently by scanning and uploading documents.
- Ease – it becomes easier to generate documents or access necessary documents. This is because it is less time-consuming to find what you need through a digital system.
It is important to note that in the UK, the government have implemented a scheme within the last five years called Making Tax Digital (MDT). This scheme does exactly what it says on the tin – it makes tax procedures digital. It attempts to make dealing with taxes easier and more efficient by doing everything online and keeping it in the same place.
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This means that HMRC tends to expect that business owners keep a digital record of their bookkeeping regardless of whether they also do it physically. This makes it easier to upload what you need and keep it organised and means HMRC already have the basic details they need about your business to sort your tax returns.
The documents you upload for MDT can be a scan or the original digital copy. What’s most important is that records are accurate, as HMRC can charge you a penalty if your records are not accurate, complete, and readable. Digitising records can help with legibility and accuracy because you can see the record itself and not simply a manual input of the data.
Digital bookkeeping may sound like a breeze, but there are a few cons that come with it. These can include:
- Privacy issues – If you are using a digital bookkeeping service or cloud-based storage, there is always an issue surrounding privacy. There is always a chance your documents could be compromised or stolen, so you need to safeguard against this.
- Internet access – While global access is great, it can also put pressure on you to always have and maintain a strong internet connection so you can keep having access. This can be expensive and not always possible.
- Moving from physical – Some businesses may meet complications with moving from one form of bookkeeping to the other. It may be difficult to consolidate all documents digitally, or they may have an issue with the software itself in terms of price or keeping it updated.
These issues can be a barrier for some when it comes to going digital with their bookkeeping.
Physical Bookkeeping
Physical bookkeeping is the more ‘traditional’ way of handling documents. We all know the stereotype of the shoebox full of important documents crammed into a cupboard! There are, however, some benefits to keeping physical copies of documents. These include:
- Cost – Physical bookkeeping can be less expensive to implement, especially when a business is first starting out. This is doubly true when considering all of the paid-for services available, as they can rack up a pretty penny over time.
- Less data issues – Physical data cannot be corrupted or lost in a few clicks! This removes the chance that a technical issue will cause you to lose access to important information without being able to recover it.
- No need to be tech-savvy – It can help people who are less well-versed in technology. It is a simpler way of organising things in this regard.
For some documents, it is important to also keep your physical copy. This is the case for any documents with a tax deduction on them: for example, these documents may include your savings interest statement, employment documentation such as P45 or P60, pension documents or share dividend documents.
The issues with physical bookkeeping are far more common and obvious. These can include:
- Loss – Physical documents can often be easier to lose track of. They are also more susceptible to environmental tragedy, like fire, ink degradation and deterioration. It is important to keep any physical documents safe and well preserved.
- Harder to organise – Especially if you have a lot of documents, they can take up a great deal of physical space and therefore be harder to organise or maintain. It can be harder to keep track of where everything is and therefore becomes an inefficient way to bookkeep.
- Environmental issues – Keeping excess amounts of paper and constantly printing things can have a negative impact on the environment. It also stands that most receipts can’t be recycled because of their composition, meaning that it has a higher impact on landfill and the destruction of natural habitats.
These issues can be a dealbreaker for some, especially those who like to keep organised and always know where they can find what they need.
Is There Anything That Affects Both Forms?
Whether you use physical or digital bookkeeping or even both, it’s important that they are both filed in an organised and accessible way. Doing this makes accessing important documents more efficient and it makes it easier if you need to file for anything.
With digital bookkeeping, you don’t necessarily need to pay money for a dedicated service if it’s not something you need or can afford. You can just use free programs like Microsoft Excel or Google Drive to keep things safe.
Use folder and document names to keep things organised: you can name things as dates using yy/mm/dd format for easy searching and break down folders into other pathways to make finding specific files easier.
You can do a similar thing with physical bookkeeping. Use files and folders with specific titles and use cascading tabs to section them separately and keep them neat.
Both physical and digital records also need to be backed up and protected regardless. You should make copies of those originals that you can store off-site in case of a fire or break-in, or copy documents onto an external hard drive in case of technical failure.
Neither forms of bookkeeping are infallible, so keep that in mind – it’s always better to be safe than sorry with important documents!
Conclusion…
Ultimately, the decision between using either physical or digital bookkeeping comes down to a personal preference. However, with everything becoming automated and moving online, there is a basis of recommendation to have at least a digital form of your business’ bookkeeping.
How you store records is undoubtedly important for keeping you organised, on the ball, and making money, but you should absolutely always have a backup plan regardless of your method. Do whatever makes life easier for you and will propel you further to financial responsibility and success.
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Do you need help going digital with your bookkeeping? Our team of experts here at Count are ready to help! Feel free to reach out to us here today.