The importance of bookkeeping is equivalent to running the business itself. It’s the heart of management, reporting, and investment. Through it, a business can stay organized, prepare tax returns, and create budgets, among others.
When business financial information is available, you can find out if your business is financially secure. It’s the limelight to shed direction for what’s happening in the business.
Accurate bookkeeping is essential for credible statutory and financial reporting.
Not analyzing income and expenditure can hinder your business from reaching its full potential. Below, I have laid out 10 reasons your small business should embrace bookkeeping.
Organization in every business presides over success. Organizing your business transactions helps extensively.
Organizing your financial records well helps you have all the information ready and easy to locate. You don’t have to waste time tracing an important record. It could lead to missed deadlines or inaccurate records.
Accurate maintenance of financial records will save you as a small business owner with a heavy weight on your shoulders. Whether you want to know if you’re making profits, or want to apply for loans or grants, bookkeeping will enable you to find documents quickly.
So, you will not waste a lot of time and energy trying to find important information from many documents. You won’t need to worry about how the cash spent doesn’t match with business activities performed.
If you do automated bookkeeping, you can achieve a lot within a few minutes. This is unlike manual bookkeeping, where you might take hours to accomplish the same. So while you achieve organized records, you save time which you can use to grow your business.
Filing of tax is a necessary evil for every business. Though it’s time-consuming and stressful, it’s a requirement from the government that you can’t ignore.
Up-to-date bookkeeping helps you know how much your business owes as tax. So if you collect VAT on sales, chances are that you can know how much you owe the government at the end of the month. Also, paying for annual taxes as they fall due will be easy.
But where you don’t keep records, you won’t know when you’ve spent cash that isn’t yours. You can find yourself in a dilemma of collecting a lot of tax from increased sales. But since there are no up-to-date records to guide you, you cannot submit the tax.
In such a case, when the government discovers you, they may subject you to a tax audit. There are those businesses that are hit with an enormous tax bill for evading tax.
So maintain accurate records and avoid getting surprised by tax bills.
With up-to-date records, you can easily apply deductions to tax by identifying tax allowable expenses. This can help reduce the tax burden and save you cash.
Proper record keeping will also save you from penalties and fines for late payment of tax. Thus, give due attention to bookkeeping and ensure timely filing and payment of tax.
You can easily set targets when you have the information showing you where you are. Bookkeeping makes this possible. Not having reliable records can limit you from achieving business goals.
But accurate, understandable, and factual data can help you plan a course for future success. You can ask the following questions and plot effectively:-
Detailed bookkeeping provides up-to-date financial information that helps set targets to achieve.
You’ll find all the historical financial information very key to making future business plans. This is impossible without maintaining business records. The availability of data to analyze makes it easy to set growth goals.
It also saves you from disappointment that you didn’t achieve targets—a common scenario when you are guessing everything. By keeping regular financial records, you can plan your goals accurately and achieve them.
Disorganized records can cause you a lot of stress and panic. Cash flow is usually the first struggle to experience since you can’t track cash moving in and out of your business.
But considering the importance of bookkeeping can help you overcome all the struggles and give you peace of mind.
Other problems that organized books will help ease include:-
All the above problems will give you sleepless nights. But with organized books, you can rest assured that your business is headed in the right direction. You’ll be at peace to focus on other elements of business growth.
When you don’t keep books to track expenditures, you risk data manipulation and fraud. And the worst thing is you may get to realize it when it’s too late.
You expose yourself to financial discrepancies and theft. So employees can easily change data and engage in embezzlement.
Bookkeeping can help reduce risks and end fraud. Adopting automated software like QuickBooks Online can help you prevent fraud. It has an in-built capability of detecting and preventing fraud.
Functionalities of QuickBooks pack it with advantages such as allowing you to set different levels of access for your employees. They can only access the data required to perform their functions, and this reduces the risk of internal fraud.
Thus, proper bookkeeping reduces errors and fraud.
When your property is organized and swept, It’s easy to spot the slightest waste. Proper record keeping will help you notice misuse of funds. It also alerts you to make on-time payments. So you avoid late fees and penalties.
A major cause of small business failure is inadequate working capital. Well-kept books will help you track payables and pay at the right time to avoid running out of cash flow. If a supplier is offering a discount, then you can pay early and save some money.
A common issue that attracts heavy expenses is tax. A competent bookkeeper is sensitive to tax deadlines and can file taxes on time and make payments. This will help you reduce business operating costs.
Bookkeeping will seamlessly allow you to examine all business expenses and create a budget that works best for you.
Financial statements will let you see which expenses are generating high revenue for you. Re-adjusting your budget to accommodate such expenses but removing those that no longer make sense may prove fruitful. You will make a higher income and reduce the overall cost.
Any business owner can’t ignore the need for a loan. Either to support new projects or cover a large unexpected expenditure. As a small business owner, you’ll eventually need to turn to the banks.
When your books are up-to-date, they get you closer to the banks’ attention. It makes it easier for the banks to evaluate your business and approve a loan.
Bookkeeping puts your foot forward. So when the bank wants to assess your credit history, cash flow, collateral, and repayment capacity, your books can prove.
Your financial records will assess you first as a potential business borrower. The banks only check your statements for proof.
Accurate records will show your net worth and liquidity. These are usually the bank’s first concern to determine your ability to repay the loan.
Financial statements communicate your credit score and level of risk. And the banks will know the rate of interest to charge you. They will also check your ability to use the credit if extended, to meet the costs of the loan and business operating expenses.
Therefore, bookkeeping will provide a snapshot of the financial health of your business to financial institutions.
At the very beginning of your business, you might opt to do bookkeeping yourself. But as the business expands, bookkeeping becomes a huge burden.
So the best thing is to have a bookkeeper and concentrate on elements of business growth.
The bookkeeper becomes handy and the best part is you will deal with a professional. Common duties a bookkeeper will handle for you include:
So you can offload yourself as many duties as possible.
How do you assess if you need a bookkeeper? You should know that you need a bookkeeper:
The government requires businesses to keep their records accurate and up-to-date to fulfill tax requirements and statutory reporting. Statutory reporting is mandatory.
Every business, whether small or big, should submit financial and non-financial information to a government agency. Various industries have sets of laws, regulations, and governing bodies that regulate reports.
Therefore, it’s important to understand your industry deeply.
To meet statutory requirements, the three key components you should consider include:
Statutory accounts preparation involves collecting and validating records from various ledgers to create a trial balance. The exercise must agree with the Generally Accepted Accounting Standards (GAAP) or International Financial Reporting Standards (IFRS).
Businesses should aim to have a complete set of accounts that support statutory audit. Once the audit process is complete, a company should get ready to file returns with the government. And this is according to the applicable filing dates.
Statutory reporting depends therefore on bookkeeping.
Failing to comply with statutory requirements could cause consequences ranging from fines to legal action. Thus, it takes less effort to comply than to undo the damage which will have cost implications.
Whether you are a newbie or a veteran in bookkeeping, you will always learn in the process. Digital bookkeeping, in particular, will offer you plenty of learning chances. And fill in a lot of knowledge gaps.
Bookkeeping will lead you to check in with free workshops, read content online, and use accounting tools. All you learn will help in making better business decisions.
The knowledge you will gain includes using tools like Microsoft Excel and how to balance accounts.
The small nature of your business may discourage you from hiring a bookkeeper. Particularly if you are less than a year old. So learning the basics of bookkeeping may be the better option.
The technical skills you may need to gain include:
Once you learn the above, you will know how to track income and expenses, create and use budgets. You will make informed financial decisions based on the data you’ve collected.
When your decision-making and financial management skills improve, you’ll look more credible in the eyes of customers, suppliers, and lenders. This will help you build strong relationships among key stakeholders.
Therefore, learning bookkeeping will be an intelligent investment in your business.
Bookkeeping is unavoidable for small business success. Don’t wait until your books are messy and you want to know your profit or how much you owe in sales tax.
You will achieve accurate and organized records, informed decision-making, and compliance with tax laws by bookkeeping.
Embracing it will help you lay a solid foundation that fosters growth and sustainability.
You may not have prioritized bookkeeping because it’s stressful and time-consuming. Consider outsourcing bookkeeping services from professionals. It’s more cost-effective than hiring a bookkeeper.
We can remove stress related to bookkeeping from you. We will save you time, so you concentrate on other areas of your business. Reach out and chat with us.
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