Bookkeeping helps the business owner maintain an accurate record of all the financial transactions of the business. Despite this obvious benefit, a majority of business owners lack proper and sound bookkeeping procedures.
Besides the fact that it is a legal requirement to maintain honest books and records of the financial transactions of the business for tax purposes, bookkeeping intelligence is a venture that saves the business owner massive confusion and headache in the future.
Most businesses fail because they lack a proper policy to guide bookkeeping and accounting practices. In simple words, a business is operating blindly if it lacks proper bookkeeping and accounting principles.
If you are looking for more reasons why you need to focus on bookkeeping for your business, below are 15 motivations why you need to set up or improve bookkeeping for your business.
Bookkeeping Is Key in Budgeting for Business Operations
It is easier to review a list of expenses and sales of the business from properly kept financial records. The business owner is in a better position to review financial transactions and to determine the level of adherence to preset budget estimates or limits.
A budget report is key in keeping your business focused on its growth objectives. A budget helps you plan for future expenses of your business and also helps manage use of the available resources and keep the business in operation.
In many jurisdictions, businesses have to file or report their tax amounts for each financial year. Unfortunately, many business (running in the millions) end up racing against time trying to locate all the missing paperwork that details the tax obligations for that given year.
Filing your taxes and avoiding legal hurdles with the government is made possible by having a functional bookkeeping department in your business.
And it is not just for your business, bookkeeping is integral for filing of tax reports on personal income as well. Any business owner will need to first determine how much the business made before they can know how much they have earned in their personal capacity as a beneficiary of the business.
Bookkeeping helps avail all the financial information you need and on a timely basis. You will not have to scramble and run around in search of receipts and invoices because all your financial transactions have been recorded accurately and are well stored in an organised format.
Every owner of a successful business must be well organised such that they can produce any necessary information of the business at any time when the information is required.
There are always external parties that require you to provide specific information on your financial records of your business for one reason or another. Such institutions may include the Internal Revenue Service (IRS), business employees, customers, capital providers such as lenders among others.
In almost all instances, ability to provide credible and reliable financial information for your business and on time will significantly influence business operations.
In some instances, unavailability of critical data could mean fines and penalties for your business. In the case of the Internal Revenue Service (IRS). Lenders, on the other hand, will cut off the much required financial resources if they cannot obtain the required information from your business.
Disorganised records could mean broken relationships with important parties for your business
Performance Analysis of Your Business
Bookkeeping is an important tool used in analysing how the business is performing and determining the next course of action to improve business operations.
Bookkeeping results in important business documents referred to as financial statements. Financial statements are generated regularly (often yearly) and are very useful for determining the current financial position of the business as well as predicting the future.
Financial analysts rely on financial statements to advice. It will show you how your cash inflows and outflows are balancing for the profitability of your business.
A study of financial statements from businesses in various fields will guide your investment to businesses that are viable.
This is the kind of analysis that is needed to measure the strengths and the weaknesses of a business and forms the basis for which remedial or progressive actions can be taken
Improving Decision Making
It is unprofessional to make decisions without proper information to back and guide business decisions such as taking a loan, otherwise it will be all guesswork.
Bookkeeping provides the information required to make and back up the decisions that improve the profitability of the business.