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 finance,
outsource Back office, outsourcing bookkeeping services, etc.
