What is bookkeeping? This is the process of recording your business firm transactions in a systematic and orderly manner, which is also the first basic step of accounting. Accounting involves classifying, reporting and analyzing data which is all made possible through bookkeeping. Every business owner needs to embrace the bookkeeping process if they are serious about their businesses.
It is the role of all business owners to see to it that all the business account books are in good condition and are a reflection of how your business is doing financially.
The following points will help you get the idea and knowledge as to why bookkeeping is essential and should not be overlooked by both small and big businesses.
Better Decision Making
For every business to grow and expand, the right decisions must be made and in good time too. One way for you to be able to make sound decisions for your business is from the available information in your existing account books.
Helps You Budget
For anyone who is in business and looking out to expand, budgeting is one of the tools to consider. A budget is crucial since it will help you plan for future expenses and where to get the resources to cater for those expenses as well. Without a well-planned-out way of income and expenses in the bookkeeping records, it becomes very hard to budget for anything. In business, a budget basically creates a projection of the finances.
For most businesses, it is a requirement by the law to file tax returns every end of a government financial year. This can be stressful if you do not have all the necessary paperwork required. Delaying to file tax returns in good time may cost you a penalty which is not what you want. With a well-organized bookkeeping process, it becomes very easy to file the tax return when that time comes.
It is also wise as a business owner to keep a record of your personal tax return as this will also help you know how much your business made in a year since most of your income is from your business.
As a business owner, being organized will work for your advantage since you can find all the information you need about your business whenever time is required.
Some important people in your business, like investors and lenders, may require your business records to decide on whether to invest in your company or grant you a loan or not, and if you are not in a position to produce these records, basically they cannot assist you financially which is a big disadvantage for you.
The IRS also requires you to provide it with your business record, and failure to do so may result in penalties.
Having your financial records well-kept makes it easy for you to retrieve any information needed by any of the mentioned parties.
One of the products of bookkeeping is the financial statements. Financial statements are used for the analysis of how the business is doing and it is advisable to produce them regularly to keep your business on check often.
Bookkeeping will give you information on which business strategies are working and which are not working. When the company has this kind of analysis, it is in a better place to work on its weak business lines.
As a business owner, you will require your records for business financial performance at the present as well as in the future. It is from your bookkeeping records that you will know what works for your business and what does not. With such knowledge, you can plan your income wisely.
Bookkeeping also aids in tax planning, giving the CPA all the important information to properly spell out revenue and expenses.
Peace of Mind
When you do not have your business information in good shape, the chances are that you will be very uneasy and stressed knowing very well that the IRS may want to see the records which you do not have. However, when your books are well kept and complete, you do not have the slightest doubt with yourself and so no tension of any manner at all.
Track Profit and Growth
For business owners to know whether their business is making profits or not, they need to have the income statements which are derived from bookkeeping. With this kind of information, it is easy to see how well or bad your business is doing.
Through bookkeeping, a lot of data will be accumulated in months and years. This data can be used to track growth by comparing it year after year over a long period of time.
Better Cash Flow
In your business, you are expected to track when your customers and vendors are paid and make the payments in a good time. Through bookkeeping, you will get to know the outstanding invoices as well as customer name, how much you owe them and when they should be paid to make you have good cash flow policies.
Easier IRS Audit
In case the IRS is out to audit you just make sure your record books are in good shape which can only be ensured if you have been bookkeeping. Failure to produce books that are presentable and reliable can lead to penalties
A Requirement by the Law
The law outlines that for every business owner, a financial record is needed. It stipulates business owners to separate personal expenses from financial records of the business.
By now, it is clear why business owners need to observe bookkeeping at all times in their businesses. This goes a long way. Saves you on time, money and even stress that can build up by the thought of not having proper bookkeeping records.
Another challenge that poses to business owners is not being in a position to know how bookkeeping is done. If you find yourself needing bookkeeping service, consider working with us, we all know it is not easy and we are ready to offer our services with a smile.