10 Reasons Why Is Bookkeeping Important For Small Businesses?
As a small business owner, one of the most important things is knowing how your business is operating financially. Without this, you could be running your business blind and come into all sorts of financial trouble. Bookkeeping is so important as it will give you accurate information on how you are performing. Through regular bookkeeping, you will be prepared for your tax return, be able to track your profit and growth and make better decisions amongst many other things. Below we have put together 10 reasons why bookkeeping is important for your small business.
You Will Be Prepared For Your Tax Return
Every year there comes a time when your tax return will be due. When this tax return is due, there is normally stress of getting everything together and finalizing the details, and working out how much is due. By bookkeeping, you are able to keep track of your finances year in year out and know every month how much tax you should be paying. This means there is no large tax bill that comes at the end of the year that will be a shock. If you are ever required to send your documents in, by keeping an accurate record, you can easily send all the information in as proof of your earnings.
Accurate Picture Of How Your Business Is Doing
It’s important to know how your business is doing financially. By regularly updating your accounts, you will have an accurate representation of what’s coming in and what’s going out. This can then help when making future business decisions. Without knowing, you may feel that you are making plenty of sales and are doing well, but not realizing your costs are high meaning your profit isn’t as big as you thought.
Track Your Profit
and Growth
Through accurate bookkeeping, you are able to easily track your profits and see how your business is growing. Many systems will allow you to pull reports of the system which will give you a month or yearly information on how you are doing. By having a report it’s easy for you to identify the good months of the year, the bad month and analyze why you were having a bad spell.
Improves Decision Making
As you can imagine it’s a lot easier to make a decision when you have the number and facts in front of you. Bookkeeping allows you to keep your finances in order, meaning you can go to a board meeting and discuss factual numbers. Without, you could be making decisions on what you think is happening when in reality, this may not be true.
Reduce Stress
As a small business owner, it can be very stressful being your own boss and making all the decisions - especially if you have employees that you look after as well. However, one stress that can be relieved is your financial worries. If you are doing well and your financial statements are up to date, backing this theory, you can go to bed feeling less stressed knowing your business is in a good financial position. If you don’t prioritize your bookkeeping how can you possibly know where you are financially which could lead to an increase in stress.
Helps Your Budget More Accurately
Bookkeeping should be an integral part of all business operations. By regularly bookkeeping you will find budgeting to be a lot easier. Through regularly updating your accounts you will have your income and expenses organized correctly, allowing you to review what your business is doing. Through these statements, you can easily budget for future income and expenses. This will help with the growth of your business and allow you to predict a more accurate future with relevant information, instead of guessing.
Organization
As a small business
owner, your organization is key to running a successful business. You do not only want your financial records organized, but also other areas of your small business as well. By regularly bookkeeping, you will be organizing your finances, getting a better understanding of how you are doing. By doing so, you’ll be able to locate certain financial information easier should it be required.
Required By Law
Simply put, accurate finances are required by law. So by bookkeeping, it’s a lot easier to keep track of how everything is doing accurately. If your process is not smooth things can get missed which could lead to fines and you getting in trouble. Should you get audited, by having a good bookkeeping process in place you will be able to find the documents that they are requesting easily.
Better Cash Flow
Bookkeeping is an extremely important part of knowing where your money is coming from and if anything is outstanding. If you are bookkeeping correctly you will know if any invoices are still due and any information about that invoice, for example, the due date, customer name, and contact details. By knowing this information you can decide how much cash you should have on you at any point in time.
You Learn In The Process
When bookkeeping you will be learning the processes each time you do it. This is important as it will not only help you grow as a person, but it will help teach you best practices when it comes to accounting. The more you learn the smarter and more aware you will become when making financial decisions based on the information presented to you.
The above ten points are only a touch on a large list of why bookkeeping is important for small businesses. But if there is one thing to take from the above is that accurate booking is essential and will be a big part of your business’s future success. Not everyone is an expert when it comes to bookkeeping and if you need any support you can hire accounting and bookkeeping services for small businesses, like ourselves. Our team is always here to help you with any finances questions you may have. J
Why do you believe bookkeeping is important for small businesses? Can you add any points to the ones above? Let us know in the comment box below, we would love to hear from you.