Bookkeeping – A Business Essential
How’s the business you are running? Initially it may be a bumpy ride, especially as you work on establishing some sort of system for your different processes. A common mistake entrepreneurs do is to focus too much on increasing their sales and totally setting aside accounting matters. We are here to tell you why bookkeeping is essential for your business to thrive.
To start off, what is bookkeeping? Bookkeeping, as defined by Oxford dictionary, is the “activity or occupation of keeping records of the financial affairs of a business.” Regardless if you are a small business owner or have been in operations for several years already, it is important to have your financial records in place and here is why:
Improved Financial Analysis
Many businesses struggle with budgeting, planning, and controlling because there is lack of understanding on where their money is going and how to optimize their operations. There is also no clear metric to evaluate the impact of their decisions. If you can relate to this, then bookkeeping may be the answer to your problems as it aggregates information on the different aspects of your business into a Balance Sheet and an Income Statement.
These two reports alone provide substantial information on your company’s financial position and performance, which can be compared over time. For example, these reports, coupled with your daily transactional records can aid in tracking cash collections or profits from one month to the next. It can also provide guidance on which products are performing well, which customers are good standing clients or which invoices are still outstanding.
Attracting and Retaining Investors
As your business continue to flourish, you can eventually expand your operations through a more diversified product line, extend your market reach say to international shores, or whatever brilliant idea you have in mind! All of these will require additional financing and having investors can give you a head start. However, to draw an investor or even retain one, you would need to provide them snapshots of your business mostly through periodic reports, financial statements, or various performance charts available.
Investors are generally interested in knowing how well you are utilizing your assets and your capability to generate sustainably increasing profits over time. The idea is to keep them informed about the financial status and company plans and if they see the potential of netting positive, they will get involved with you.
Effective Tax Compliance
The law requires that as a business, you need to keep financial records and to pay the proper taxes due. If not, you will be imposed penalties or worse, you’d be forced to terminate your business. This is another reason why bookkeeping is necessary as it facilitates the retrieval process come filing season.
Organizing your bookkeeping records can save you from exposures to litigations and huge fines. With effective bookkeeping, you can easily tabulate the exact amount of taxes you need to pay. Not only that, you can also assess for yourself how much tax deductions you are entitled to.