Bookkeeping is important for helping you maintain accurate financial records. Yet still, many businesses fail to implement this integral process. Besides the fact you are required under law to maintain accurate books and records, doing so will save you frustration later on.
In fact, “poor accounting” is one of the top reasons businesses fail. Without bookkeeping or accounting, you are blindly driving your business.
Still not convinced that your focus needs to be on bookkeeping? Below are 15 reasons why bookkeeping is important.
What Is Bookkeeping And Why Is It Important?
Bookkeeping is an essential function in your business for both legal and financial management purposes. By keeping accurate records, your business can get a snapshot of its health in the form of financial statements such as income statements, balance sheets, cash flow statements, and more.
What Are The Essential Qualities To Look For In A Good Bookkeeper?
- Excellent communication skills.
- Adept at accounting software and new technologies.
- Organization and teamwork.
- Experience in your particular industry.
- Flexibility to adapt to different working styles.
- Relationship-building skills.
Which is the most important feature of bookkeeping?
Bookkeeping involves the recording of financial transactions and other information related to the business on a day-to-day basis. The most important aspect of bookkeeping is to keep an accurate account of all records and keep them up to date. Accuracy is the most vital part of the bookkeeping process.
Here are 13 reasons why bookkeeping is important for your business
1.Bookkeeping Helps You Budget
Budgets are important for business; they are the financial guidelines for success. With bookkeeping, you can be able to assess your financial resources and manage income vs. expenses.
In most cases, your business has to file a tax return every year. And every year, millions of business owners are scrambling through their desks to find missing paperwork. Sound familiar? The tax filing process can be made more efficient by simply having a bookkeeping function within your company.
Bookkeeping is important for filing your personal tax return too. As a business owner, a large part of your income comes from your business. In order to know how much you earned, you have to know what your business earned first.
With a bookkeeping process in place, you can have financial information ready for tax time. Instead of scrambling for receipts or invoices, all of your financial information is organized on one central system.
Organization of financial records is very important. You should be able to easily assess your financial information at any time. This will help when it comes to applying for grants, loans, or even attracting investors.
Bookkeeping is important because it helps with business analysis. It is a tool used by management to analyze business performance. The product of bookkeeping is financial statements. Financial statements should be regularly generated and used for analysis.
While analyzing financial statements, you can track your cash inflows and outflows. Bookkeeping gives you information on which business lines are working or not working. This type of analysis allows focusing on your company’s strengths and improving on its weaknesses.
5.Improved Decision Making
The best decisions are made with access to all your business information. Bookkeeping provides all accurate information regarding your business, which allows you to make decisions for growth.
With analysis comes better decision-making. In order to make the best decisions possible, you need to have access to all available information. Bookkeeping provides this information.
How can you expect to make profitable decisions without financial information to back it up?
Bookkeeping presents the past financial performance of your company. In order to plan for the future, you have to have a good understanding of the past. Bookkeeping will give you a clear picture of what exactly works or doesn’t work.
Bookkeeping not only helps with planning for strategic purposes but also plays a major role in tax planning. It gives your accountant the necessary information to properly categorize revenues and expense
Bookkeeping is important because it allows you to take control of your business’ finances. Bookkeeping paints a clear picture of how you spend money. You can see outstanding invoices owed by you or your customers. You will benefit from paying your bills on time and receiving payment for your products or services on time too. It’s this delicate balance of cash inflow and
Investors need to know the financial performance of your business to determine if they would like to get involved. Bookkeeping provides up-to-date and accessible information to attract investors.
Being a business owner alone can bring its own stress! With a complete book, you can rest knowing that your business is secured.
10.Profit and Growth
Bookkeeping is important because it shows your business’ profitability. For example, the income statement is one of the financial statements that are prepared from your bookkeeping. On the income statement, you can see if your business is profitable or not. Without this information, it is impossible to know how well (or not so well) you’re doing.
Bookkeeping also helps with tracking growth. Over time, you will accumulate months and years of data. With this data, you can observe trends and gain a greater understanding of your business cycles and compare results across periods.
11.Better Cash Flow
Bookkeeping is as important as the business itself because it also aids in improving your cash flow. It provides all information on invoices –customer/vendor name, amount, date issued, and due date. The routine recording of revenues helps you to keep track of when your customer’s and vendors’ invoices are paid
12.Easier IRS Audit
Bookkeeping serves a greater purpose in an audit by the internal revenue service because if your books are in order, it makes the process easier and faster.
13.Requirement under Law
Finally, it is the law that you keep financial records of your business. To avoid the termination of your business, you have to obey the law!
The importance of bookkeeping cannot be over overlooked, so those are some of the common mistakes business owners typically make. To avoid these mistakes listed above (and even those not listed in this article), I highly recommend you hire a reputable accounting firm as that will significantly save you the stress, time, and money you could otherwise incur over time.