To know the importance of bookkeeping, you must go through your business step by step. If you are associated with any type of entrepreneurship, you must have been gone through a patch where you can’t find a trace of your expenses when you need more. Then you must figure out in which cases you are investing a lot but in return, you are earning very minimal, so you must learn where to invest and how to invest, and then how to bring out the profit in such cases bookkeeping enables you to minimize the cost and bring out more profit than before.
Bookkeeping helps you to keep track of every financial activity. It helps you to trail back your expenses to identify if any unnecessary expenses could have been avoided. Is Bookkeeping worth it? Well, the answer is a big yes.
Before getting into the importance of bookkeeping, managing a business, we must have a clear understanding of bookkeeping means. So let’s have a quick look at bookkeeping easy definition first.
Contents
What is bookkeeping?
Have you ever saved from your pocket money to fulfill your small demands by yourself in childhood? If the answer is yes, then you are familiar with bookkeeping from a very early in your life. Your small calculations to save a dollar each, to sum up, 20 for a gaming DVD is what Bookkeeping is.
Imagine your company’s profit as “Gaming DVD”, then your pocket money is the source of funds. Your daily expenses are financial activities, and the dollar you save is an investment. In the early stage of your life, you have stored all these sum-ups in your mind, but when done for a business in an organized way is termed as Bookkeeping.
Bookkeeping is a systematic way of recording the financial activities of any business with proper documentation following accounting principles. The policies can be different for each business, but recording them requires accounting knowledge. If we break down the definition of Bookkeeping, we find the following bullets:
- It is a systematic way.
- It requires recording financial activities.
- Recorded financial activities must be backed by proper documentation.
- Need to follow accounting policies.
These activities of Bookkeeping give you an upper hand while taking business decisions. In addition, a good bookkeeping habit can make you assess your business in any instant with cash flow statements, income statements, balance sheets, etc.
Influence of Bookkeeping to any business operation
Owning a business and operating them are not the same. You may own a business by investing, but operating them to success needs your mantra. The basic mantra of a successful business is organized and accurate Bookkeeping.
In small companies, it is always a luxury to keep a full-time bookkeeper. Big companies can easily afford them. So what is the best solution for small companies? To hire a third party or outsource Bookkeeping. Either of the options will cost you less but will save you big time.
While operating your company, you need to keep a trace of each penny that you are spending. Hiring professionals for such work is necessary to do the business up and to run. To operate a business successfully, achieve the following:
- Precise entry of each financial activity.
- Traceback spending
- Evaluate current financial standings.
- Take instant financial decisions.
- Take care of tax-related activities.
- Manage wage of employees.
- Predict future expenses from previous trends.
The above bullets indicate that you need a bookkeeper despite your business size to achieve financial glory.
What is the importance of bookkeeping in managing a business?
Managing a business is no less than taking care of an elephant. The only difference is that you cannot understand the mood of the elephant, whereas the mood of business can easily be tracked thanks to Bookkeeping.
Why Bookkeeping is so important has been analyzed thoroughly to come with sequential bullets.
1. Importance of Bookkeeping in Budgeting :
Budgeting is an important aspect of your business. Without proper budgeting, your business may lose its way. Bookkeeping helps you to come up with the budget necessary for future spending.
Budgeting is the result of proper Bookkeeping of your income and expenses. It is the core of running a business. 90 percent of your success relies on the proper utilization of funds, i.e. budgeting.
2. Organization :
Organizing financial records is a must to obtain accurate results for any business. If your financial records are organized, it will help you to obtain a better picture of your business.
Keeping track of your incoming and outgoing cash flows will enable you to organize the flows of your business. Organizing financial entries also give you a better way of predicting future growth.
3. Optimization :
Optimization of business strategies also requires a Bookkeeper. Understanding your business and finding the best solution for your accounting records is key to your bookkeeping success.
You can keep a record on a cash basis or accrual basis. Cash basis means all accounting records being recorded at the time of cash movement. The accrual method suggests that you should record a transaction when there is product/service movement rather than cash.
If you know what’s best for you will give you an advantage going forward. The nature of the business of a company is also important. You can use both ways to optimize your business if you have versatile products.
4. Keeping Healthy Cashflow :
Keeping healthy cash flow is a must for a successful business. Without ensuring proper and timely cash flow, your business may lose a strategic advantage over others.
If you can track the amount and time of cash needed for inventory and payables, it will be easier for you to target cost-benefit in the form of bulk purchase, stock management, etc.
5. Keeping Law and Order :
Keeping law and order is another milestone that is necessary for big businesses usually, but this is equally important for small businesses to become a big ones. Proper Bookkeeping of inventories will help you minimize potential theft. The same goes for cash flows.
Proper management makes everyone involved in business accountable and responsible. It helps you and your employee to become transparent. If law and order can be established using it, you will always be at peace in mind.
6. Easy Auditing :
Easy auditing requires accurate Bookkeeping. Auditing will be there in your company for assessing your business. If your Bookkeeping is organized and transparent, then the auditing will be easier.
Proper Bookkeeping makes you compliant with the govt. Norms that you are supposed to follow. A compliant company is capable of achieving higher feet as they are well trusted by the stakeholders.
7. Employee Management :
Employee management is a must part of any business. Bookkeeping is important to ensure proper employee management. It gives you an idea about the current employees to required employees ratio.
If you can identify that your accounting data is showing that you require cost-cutting to a division to maximize your profit or help you cost reduction or give you to utilize your spare hands to elsewhere, you must do it for the sake of the company.
8. Profit Calculation :
Profit calculation is the most anticipated part of any business. It gives you the motivation to move forward. Bookkeeping gives you an idea about your profitability. It also helps growth track.
Your income statement enlightens you about whether you are making a profit or not. If you are not making a profit, it enables you about books that require your attention to maximize profit or cut costs
9. Improved Financial Decision :
Improved financial decision is required to take the business forward, and Bookkeeping provides you with that. If you can overview your business at the time of the financial decision, your decision becomes more realistic and goal-oriented. It is important to take the correct decision in crunch time. If your mantra is taking your business to the next level, then Bookkeeping is the only tool that will help you instantly.
10. Negotiating Tax :
Negotiating tax is made smoother through bookkeeping. Tax is a major issue for any business operation. Proper tax calculation gives an entity edge over
many things like tax exemption, tax benefits, etc.
If tax calculations are done properly, fields can be identified where tax benefits can be applied. A good bookkeeper helps you to pay less tax in your
taxation year.
11. Gain Balance between Asset and Liability :
It assists you to establish a balance between Asset and Liability. Asset and liability must be in balance to ensure smooth operations. For
example, you have a payable to pay the next day, but you don’t have enough cash to pay for that. A bookkeeper will help you ensure that balance so that you can pay off your payables smoothly.
If you arrange the first alphabets of each bullet, you will find that it’s BOOKKEEPING that expresses the importance of bookkeeping. What are you
waiting for? Get started with any practice bookkeeping habit for your lovely business.
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