In order to maintain accurate financial records, bookkeeping is essential. Many businesses cannot implement this integral process successfully. To maintain accurate books and records is a legal requirement as well as this will save you from frustration later on.
Most of the businesses fail due to poor accounting. Running your business without bookkeeping is very risky and harmful.
Following are the reasons why bookkeeping is getting more popular in the past decade:
Tax Preparation
Since tax filing is mandatory, so it is better to make the tax filing process a little less cumbersome. If you have a bookkeeping function within your company, then the tax filing procedure will be much more efficient and effective.
In case of filing your own personal tax return too, bookkeeping can be of great help.
With a bookkeeping system in your business unit, you will always be ready with your financial information for the tax time. You will feel relieved as all your financial information is in one place, safe and secured.
Budget
By using bookkeeping, you will be able to maintain the budget. You will be able to organize your expenses and income. Thus, you will have a clearer view of income and expenditure.
With a well-maintained budget, you can plan your future expenses. You will also be able to decide and finalize about the resources that would cover those expenses.
Analysis
Bookkeeping is significant as it helps in business analysis. It is one of the best tools to analyze the performance of your business.
Financial statements should be updated regularly so that the management can use them to analyze the business.
When you are going through your financial statements, you will be able to track your cash inflows and outflows very easily.
Such analysis will, in the long run, help you to identify the strength as well as the weakness of your company.
Organization
Being organized should be the foremost quality of a businessman. You should always be ready with the details of your business. You should be able to furnish them anytime the requirement comes.
Some parties like employees, customers, IRS, investors, lenders can show interest in your company’s financial records. If because of lack of organization, you cannot provide the required details to these parties, it may result in penalties, stoppage in cash flows, and so on.
As we all know, bookkeeping is the institution of financial information. When you keep your financial records organized, it is easier and convenient to locate and provide the required details to the concerned parties.
Better Decision-Making
As you start analyzing, you will be able to make better decisions. And if you want to make the best decision, you need access to all available information. Bookkeeping helps in gathering this information.
Convenient Reporting to the Investors
Naturally, investors will take an interest in the financial performance of your business. Basically, they want to quantify the value of their investment. Financial statements serve that purpose. The cash flow statement, the balance sheet and the income statement, all the three constitutes the value of your business.
Investors will be happy and satisfied as they will be getting regular updates. They will take much better and well-balanced decisions.
The prospective investors, too, will invest in your business only when you can provide them with organized financial information.
Planning Purposes
Bookkeeping represents the past of your business. If you want to plan for the future of your business, you have to look and study about your past. Bookkeeping will enable you to see through the details. You will understand what works and what does not.
Bookkeeping not only helps in planning g strategic purposes, rather they play a significant role in tax planning too. With the help of bookkeeping, you along with your CPA can consider particular expenditures to be more favorable.
Attaining Peace of Mind
You get already stuck up in lots of issues. While sleeping at night, the last thing on your mind should be the bookkeeping issues. If you get your books ready and complete, you will feel at peace all the time, knowing that your business’ financial information is ready for review. You will feel no more anxiety because of the banks or IRS. You will be able to focus on other important sections of the business.
Management of Finance
With the help of bookkeeping, you will be able to take hold of your business, finances. It will give you a clear image of all your expenses. You will be able to make payments as well as collect cheques and payments from your clients on time. This delicate balance of cash outflow and inflow will help maintain your business and keep it going.
Much Better Cash Flow
Undoubtedly, your cash flow will increase because of bookkeeping. Due to routine management of expenses, revenues, liabilities and receivables, you will be able to track when your customer and vendor invoices are pending. You should pay your vendor on time to avoid any late fees.
Bookkeeping provides the much-needed information and other details related to your outstanding invoices. These details are later on useful for implementing better cash flow policies.
You can shorten the amount of time you provide your clients to pay you. Also, you can wait a day or two before the payment due date gets over. In this way, you are increasing the average amount of cash you have to hand at any given time.
Focus on Strategy
Being a business owner, you always have to do strategic and tactical planning. You are always thinking about the various methods and ways to develop your business. Bookkeeping brings you closer towards your long term as well as short term goals. You should utilize the information about bookkeeping in developing strategical planning.
The Requirement Under the Law
Lastly, it is a legal requirement to keep and maintain financial records for your company. You have to maintain separate financial records of your business and personal expenses. If you fail to do so, this may lead to the termination of your business.
Author’s Bio:
I’m currently working as a Charted Accountant with Payroll Outsourcing Company. I have a great passion for outsourced accounting. In a previous couple of years, I have worked with big and small clients across numerous continents. I have a keen interest in outsourcing payroll processing, outsourcing accounts receivable, BPO outsourcing, outsource Back office, outsourcing bookkeeping services, etc.
