When you are starting a new business, there is a lot to take care of. You have offices to set up, people to hire, marketing, promotions, and a lot more. Your hands are undoubtedly full. But in all this chaos, one very crucial business area that often gets neglected is bookkeeping.
Your financial accounting is central to the business. If your funds aren’t managed well, you risk losing everything that you are working so hard to build. It is essential for new entrepreneurs and small business owners to understand what bookkeeping is all about and why it is so important.
What is bookkeeping?
Bookkeeping refers to the task of recording all of your business’s financial transactions on a regular basis. Bookkeeping allows companies to keep track of their finances and help in their key financial and operational decisions.
Bookkeeping also involves maintaining all the supporting documentation such as invoices, bills, receipts, bank statements, financial reports, purchase orders, and others.
Bookkeeping may be single-entry or double-entry. Single-entry bookkeeping is simpler, where all the transactions, profits, expenses, etc. are reported in a cash register. Double-entry bookkeeping requires adding the information to a journal, then a ledger, followed by a trial balance and financial statements.
Efficient bookkeeping is very important for businesses to be able to closely monitor their current financial status and identify future trends.
Why is bookkeeping important to a business?
Having a written record of your financial transaction in a business is something you cannot compromise with. Here are some reasons how efficient bookkeeping can benefit your business and help it grow.
When all your income, expenses, outstanding payments, receivables, etc. are properly recorded without errors, it becomes easier for you to plan your finances. Efficient bookkeeping can make budgeting much easier as you know what funds you have at hand and how you can allocate those funds. By planning your future expenses better, you can make better decisions for your business overall.
Investors, stakeholders, partners, and even board members in your company may want to see your financial reports from time to time. These reports indicate how the business is performing. With good bookkeeping, you can create financial reports instantly. It also keeps you prepared, so you can see the current state of accounts. This gives you an opportunity to try and improve where needed before they ask for your financial reports.
Better tax compliance
Efficient bookkeeping will also help you make better tax predictions for your business. So when you have to file your taxes at the end of the financial year, you will have your financial information and tax calculations ready. There are fewer chances of errors resulting in penalties and you can file your taxes more confidently.
Funding from banks and investors
When your finances are all documented and clean, it is much easier for you to attain a loan or funding from a financial institution. Any bank or individual investor would want to see the current state of your finances before approving a loan for your business. Good bookkeeping can help you make a better impression on a prospective investor or a bank.
Improved financial analysis
With efficient, transparent bookkeeping, you get a clear picture of where cash is coming in from and where it is being spent. This allows you to carry out thorough financial analyses to see how your business is performing. If your business is suffering a loss, accurate bookkeeping may help find out the cause. You can easily identify which business activities are bringing in profits and which are not.
Lastly, you may also be required to maintain your financial records under the law. Government agencies may conduct periodic audits of your business where you are required to show your expenses, income, taxes paid, and more. Thorough and accurate bookkeeping will keep you compliant with such requirements.
How to Integrate Bookkeeping into your Business
If you want to prioritise the importance of bookkeeping in your organisation, you must act quickly. While there are two styles of bookkeeping, one clearly outperforms the other.
Hiring an in-house bookkeeper can help you check the box, but it might not be the most cost-effective option. You must fund the extra costs of hiring an employee in addition to salary or hourly compensation and insurance.
Using third-party online bookkeeping software allows you to benefit from bookkeeping without incurring unnecessary fees. Tracking expenses digitally allows you to avoid errors and assure accuracy. Whenever you have a question concerning cash flow, you can get answers quickly by using a desktop or mobile portal—that it’s simple.
Acro Accounting and Financial Planning give you a full range of bookkeeping services that you need to know and your financial position is at any point in time. We can ensure your accounting and taxation obligations are done in a more efficient and cost-effective manner. With the advent of cloud-based software, delivering solid bookkeeping services.
Schedule a free bookkeeping services consultation now to start saving time for what matters most—growing your business!