Bookkeeping plays a key role in laying the financial foundation for any business simply because that is where you have all the crucial information required for sound business and financial decisions. As every business owner depends upon accurate and timely financial records, efficient bookkeeping becomes a necessary process.
The core motive of maintaining accurate, well-organized records is to have a set of reliable financial data that business owners can count on. If you are running a business, you might already know how your accounting books help you make key business decisions. Let’s discuss briefly other significant reasons why you should set up and manage the bookkeeping process effectively.
Importance of Bookkeeping for Your business
Bookkeeping, regardless of your business type, is essential to ensure your financial and legal obligations are met. With having accurate financial records;
- You get a clear view of your business’s health (by looking at important financial statements)
- You get crucial information for financial analytics
- You can detect discrepancies and take rectification steps well in time
- You can prepare well for the future by understanding trends and patterns in financial transactions
- You can rest assured and be confident about dealing with IRS audits or inquiries
Why Should You Hire a Bookkeeper?
The main reason why you need a bookkeeper is that considering your daily busy schedule, you would not be able to find enough time for maintaining records, reconciling them, generating statements, etc. Therefore, you need someone professional to manage these tasks, freeing you to spend your valuable time on other important value-adding business aspects.
If you want professionals for your books but you don’t want someone sitting full-time in your office crunching numbers, you may hire bookkeeping outsourcing services. According to Clutch, 37% of small businesses outsource finance and accounting. You may also consider outsourcing a strategic option to implement industry-best bookkeeping practices all while reducing bookkeeping costs.
However, you should join hands with an outsourced bookkeeping service provider who can help you meet all accounting principles and compliance requirements applicable in your province and to your business. Also, your outsourcing partner must have the required abilities and experience to establish the financial foundation of your firm.
Once you have a professional bookkeeper or a team of qualified, experienced, and skilled bookkeepers on your side, you will be able to realize a series of benefits, aiding the entire financial management process; let’s discuss some of them in brief below.
Benefits of Efficient Bookkeeping for Your Business Finance Management
Maintains Thorough Records
Ledgers or books of accounts act as the key source of all the financial information; no doubt why bookkeeping is called one of the core pillars of your business’s financial foundation. It records transactions using authentic sources including invoices, receipts, transaction notes, etc.
It helps you keep regular track of sales and purchases; basically, each transaction that is either sending cash out of your business or receiving it in your business accounts. All major accounting reports such as income statements, balance sheets, shareholders’ equity statements, etc., are prepared using information obtained via bookkeeping.
Helps You Do More with Numbers
Watching your business bank account balance increase over time is bliss. However, you need accurate numbers to depend upon in order to maintain such consistent financial growth. Bookkeeping helps you have a set of accurate financial records, allowing you to see and understand exactly where your firm is spending cash and from where it is earning the same.
Want to know how much your company spends on power, office essentials, and building maintenance? Your books of accounts will have these records.
Need to find your top-paying clients or customers? Your bookkeeping records will provide all the data required for comparison.
Makes Tax Preparation Easier & Smoother
According to a Staples survey with small business owners, more than 50% see tax preparation as complicated. Tax season can be challenging for any business owner due to multiple reasons. It requires one to sift through thousands of (paper/digital) documents, and dive into transactional data and tax rules to calculate due taxes. As a business owner, you might be doing the same along with managing your daily responsibilities like inventory management, staff salaries, vendor relations, etc.
On the other hand, high-quality bookkeeping records allow you to access all important information (systematically maintained over the past months or years) beforehand. It makes tax preparation easier and helps file tax returns before the due date.
However, the aforementioned survey also revealed that around 40% of participants do not have accounting expertise. This might be one of the many reasons why many business owners outsource bookkeeping services to professionals. It saves your time and effort, ensuring you don’t leave tax preparation to the last moment.
Helps Improve Decision-Making
You are making several important decisions every day. If you look into your financial books a little more closely and analytically along with reviewing statements, you would be able to read between the lines, which could influence your decision-making. For example; if you are planning to apply for business loans or thinking of an expansion, you must have accurate financial information to determine if you can afford to invest or pay back loans.
The list of finance-related decisions is long, having an efficient bookkeeping process in place helps you make sound decisions based on actual, authentic data, especially when it comes to the bigger picture of finance management.
Aids with Budget Preparation
Financial budgets are all about tracking and understanding trends, and patterns in financial activities over a period. And then predicting possible situations (challenges/opportunities) for the future in terms of financial management. Now you might agree how important it is to have precise accounting information that can be obtained by having an efficient bookkeeping process.
By taking a deep dive into your company’s financial records, you can make projections anticipating;
- How much cash is needed to operate smoothly?
- How much should be spent on marketing and outbound sales?
- How much can you afford to hire more employees?
- Do you have enough cash to manage inventory for the next quarter?
You must find answers to all these questions to prepare an effective budget and that’s where efficient bookkeeping helps you in the best manner. Similarly, your books of accounts tell you if you are overspending or underspending, or following the budget properly.
Are you aware of all financial accounting guidelines you must adhere to? As a business owner, you are responsible for ensuring that your company’s financial reports comply with all important accounting guidelines. You must also know that even a small error or mistake can create a big difference between the calculated numbers and actual numbers.
Bookkeeping is not limited to data entry; bookkeepers also reconcile the transactions with bank statements and take corrective measures if needed. When some of the vital statements and reports (that you submit to government bodies) are prepared using accurate data maintained by professional bookkeepers, you rest assured of compliance requirements.
Bookkeeping can really have an impact on the way you manage your company’s finances. However, to optimize your firm’s bookkeeping process, you might need support. Many business owners also use bookkeeping software and hire a bookkeeper while many choose outsourced bookkeeping services to save more. You can also make a choice depending upon your needs and budget and free yourself to focus on core business aspects; let professionals manage the bookkeeping part that aids the overall finance management.