Importance of Proper Bookkeeping

Bookkeeping is one of the most essential tasks of any business. Without proper bookkeeping, your business could very quickly and easily crash into a wall. Small business owners can do their bookkeeping on their own, but many invest in a bookkeeping service that will save them not just precious time but the risk of making very costly financial mistakes.

Bookkeeping is the process of recording all the financial transactions and events that occur in your business. Purchases, sales, earnings, receipts, and payments are all meticulously recorded so that all the money that flows in and out of your business is accounted for. Bookkeepers organize and track receipts and checks, and make a note of purchases as soon as they are made. They record all the data chronologically into designated books, or computer bookkeeping software. This form of careful record-keeping may seem over the top, but it is critical to the health and success of a business. Bookkeeping is only the first instance in several directions of financial planning and organization.

Small business accountantsuse the necessary information from bookkeeping records to do things like draft financial statements, or produce important financial reports. Small business accountants also need bookkeeping records to analyze the financial state of your business. Without bookkeeping records, you won’t be able to see how much money you are really making, versus how much money you have lost, nor get a firm sense of what your profits are. You also won’t be able to ascertain whether or not you are meeting your financial goals.

Bookkeeping allows you to see whether your earnings are enough to cover your expenses and gives you information that guides your financial decisions. If you are not making enough to cover your expenses and still reap enough profit, for example, then based on the details in your records, you can decide where to increase earnings or cut costs. Maybe you could charge a little more for some of your products and services, or, conversely, find a cheaper alternative to a recurring monthly expense.

If you are interested in taking out a loan or some other form of bank financing, your bank will require financial data from you that will prove to them your business is in good economic standing. Banks want to see copies of your statements, cash flow budgets, and any other such financial data.

Proper bookkeeping will also keep the Internal Revenue Service away. Discrepancies in your records will end up in faulty tax returns, which will send the IRS knocking at your door for an audit. Bookkeeping also assists with daily business management. By recording day-to-day financial details you can keep track of data, such as which customers owe you money and how much.

Proper bookkeeping arms you in making all your financial decisions with clarity and perspective. It is the foundation for effective and efficient business accounting. Avoiding bookkeeping can and will eventually end up in unpleasant financial consequences.