Reasons Why Bookkeeping Is Important
Bookkeeping is essential when it comes to maintaining healthy and accurate financial records. However, many businesses still fail to implement this vital process. Aside from the fact that the law requires businesses to maintain accurate records and books, doing so will keep you from serious frustrations down the line.
Poor accounting is actually one of the key reasons why many businesses end up failing. Without proper accounting or bookkeeping, you’re blindly running your business. If you’re still not yet convinced that your business should put more emphasis on bookkeeping, here are a number of reasons why it’s important to invest in proper bookkeeping.
Bookkeeping can help you formulate better budgets for your business. When you organize the incomes and expenses of your business properly, it will be easier for you to review your financial expenses and available resources.
A budget will be important when defining the financial roadmap of your business. With it, bookkeeper Exeter can plan for your anticipated resources and how you’d use these to cover for your future expenses
For most businesses, tax returns have to be filed every year. And each year, there are millions of business owners who find themselves scrambling over their desk to find some missing paperwork. If this sounds familiar to you, you’ll be glad to know you can make the tax filing process much more efficient by having a bookkeeping function within your business.
Keep in mind that bookkeeping will be important when filing your personal tax return too. With a large part of your income coming from your business, you need to know exactly how much you’ve earned, which calls for calculating how much your business earned first.
A good bookkeeping process will ensure you have the necessary financial information ready come tax time. Rather than scramble for invoices and receipts, you will have your financial information organised in one central system.
One of the most important skills for business owners is being organised. You want to be able to find any information regarding your business any time you need it. Generally, there are a number of entities who might be interested in your company’s financial records. They include investors, employees, the IRS, lenders, and your customers. Being able to provide them with the information they need is vital for the long-term survival of your business.
For instance, if you’re unable to provide the IRS with the information they need, you could be charged fess and penalties. Failing to provide information as requested by lenders or investors could end up costing you money. In general, being disorganised with your finances could mean losing relationships with these and more parties.
By definition, bookkeeping entails organising financial information. When you keep your financial records organised, it will be much easier to locate needed information and deliver it to the appropriate parties.
Bookkeeping also helps you with business analysis. Management often uses bookkeeping to analyse the performance of a business. Financial statements are a major product of bookkeeping, and they ideally need to be generated regularly and used for financial analysis.
Analysing your business’ financial statements can help you track your cash outflows and inflows. Bookkeeping will provide you with the information on which business lines are working effectively and which ones need work. This can help you focus more on your strengths as a business and improve on your weaknesses
When analysis is done effectively, better decisions follow. To make the best of decisions, you should have access to all of the available information. Bookkeeping will provide you with this information. Would you really expect to make great decisions without relying on solid financial information?