Want to kill your business fast but don’t know how? Don’t keep records of financial transactions!
It’s that simple and very effective.
What will follow is a cascade of events including serious problems with the tax guys, poor planning and decision making (that you won’t even be aware of until it’s too late), low investors interest, more losses than profits, and a host of other avoidable troubles.
The question now is, do you hate trouble, failure, and debt? Do you want reliable information to base your planning and decision on? Do you want to stay longer in business while experiencing year-over-year profits and growth?
Continue reading if you answered yes to any of the questions above because not only will I reveal the importance of bookkeeping as it applies to you and your business, but I’ll also be providing you with the definition of bookkeeping alongside its components.
Let’s get started!
What Is Bookkeeping?
Bookkeeping is the systematic process of recording financial transactions of a business and updating them periodically from time to time.
Or, in other words, bookkeeping means keeping the records of how much money your business owes and is being owed, or the number of profits made from an investment.
What Does Bookkeeping Entail?
Bookkeeping solely deals with the financial aspect of your business. The process of bookkeeping covers everything that touches on the finances of your business, including:
- Maintaining ledgers
- Handling accounts payable and receivables
- Payroll services
- Inventory services
- Invoice processing
- Investment or business advice
- Preparation for tax returns
What Is The Importance Of Bookkeeping?
I mentioned a few points for bookkeeping in the opening paragraphs, such as budgeting and compliance. Here’s the full list of the importance of bookkeeping along with short explanations.
- Budget planning: Budgets create a financial roadmap. Bookkeeping makes it easy to manage your financial resources, income, and expenses.
- Tax preparation: At the end of every accounting year, businesses are expected to file their tax returns. With bookkeeping, you won’t need to worry or fret when the time comes for you to provide your receipts and invoices.
- Bookkeeping helps maintain organized records: By doing bookkeeping, you will be able to maintain organized records which will make it much easier to find the information you desperately need on time. Having organized records helps greatly when it comes to applying for loans, grants, or attracting investors.
- Business evaluation: You could assess your business performance and identify your strengths and weaknesses based on the cash inflows and outflows (profit and loss) information provided in your bookkeeping.
- Decision-making: Bookkeeping gives all information regarding your business, which helps you make an informed decision that will ensure continuity and bring about the growth of your business.
- Planning: As a business owner, bookkeeping will reveal how your company has fared in the past and how to plan better for the future.
- Bookkeeping attracts investors: Before investing in a business, investors are always concerned about its potential and financial performance. They do this to find out whether their money would yield results or not. Bookkeeping provides up-to-date information to attract investors.
- Helps in managing your business finances: Bookkeeping shows your business income and expenses. As such, you get to be in control of your business finances.
- Bookkeeping eliminates worries: Running or managing a business comes with so much stress. But with bookkeeping, as a business owner, your stress is reduced.
- Helps to track your business profit and growth: Profit is a yardstick for measuring businesses’ growth. Bookkeeping will allow you, as a business owner, to track your profit and to better understand your business cycles.
- Helps with Audit work: Another good thing about bookkeeping is that it makes the process of auditing easier and faster for the internal revenue service.
- Bookkeeping gives an overview of the business: With financial statements like balance sheets, income statements, and bank statements, bookkeeping provides an overview of your business.
- Bookkeeping helps with strategic planning: As a business owner, you need to make some strategic plans on how to develop your business. Leveraging on the information in your bookkeeping, you can plan short and long-term goals and adjust the same when and where necessary.
- Aids in improving your cash flow: Bookkeeping provides all information on invoices–customer/vendor name, amount, date issued, and due date. The recording of revenues helps you to keep track of when your customers’ and vendors’ invoices are paid which ultimately improves your cash flow.
- It’s a requirement under the law: The law requires you to keep financial records of your business. To prevent your business from being terminated, you have to obey the law!
Now that you know why bookkeeping is important for your business, you should begin taking actions towards incorporating bookkeeping in your business (assuming you have never done it or you did it once but stopped). However, you should take note that when it comes to doing the books of your company or business, you should engage the service of an expert.