5 Reasons Bookkeeping is Important and Essential in Your Business
Updated: Feb 3
Bookkeeping is important and essential for your business. It is all too often overlooked as an important part of a business. Proper management of your business finances can measure true success in your business. No bookkeeping or poor bookkeeping can be hindering your business profits and your ability to pay your bills on time. There are many benefits to properly managing your bookkeeping but here are 5 benefits that are the most important.
1. Tax Compliance and Reporting
It is important to keep your finances up to date however if they are not properly managed your business could be at risk. The biggest risk is to your tax compliance. Poor bookkeeping can impact the amount of taxes you owe. You do not want over report or under report your income than was received. If your profit is miscalculated, you may overestimate your profit resulting in overpaying your taxes or you may underestimate your profit and that may result in fines for the underpayment of taxes. Improperly accounting for assets and expenses could result in paying unnecessary taxes by not taking advantage of tax write-offs and other deductions. For some types of businesses, financial reporting is required. Tax compliance and financial reporting go hand in hand.
2. Business Analysis and Decision-making
Knowing your entire financial situation is very important when it comes to analyzing your business finances and for making decisions within your business. When your bookkeeping is up to date, your financial statements can be used to monitor your income and expenses. You can assess your business performance and identify what is working within your business and what can be improved. When effective bookkeeping procedures are in place, making smart business decisions are at your fingertips. It would be hard to make business decisions based on limited information or outdated information.
When your bookkeeping is kept up to date, your historical income and expenses can be used to create a budget. In your budget, you are forecasting expected revenues and expenses based on your historical information and what your future goals are within your business. As part of your monthly reporting, you can run your budget vs actuals report to determine whether you are staying within your budget and make the necessary changes to future months if needed.
4. Better Cash Flow
Poor bookkeeping can impact your expenses, income, your ability to pay your bills in a timely manner and your banking needs. A key component to business decisions is cash flow management. Managing your cash flow involves recording every penny that comes in and out of your business to find ways to increase income, decrease spending, or both. Understanding where the money comes from and where it is going is important to know what is working and what isn’t. This tracking is on the balance sheet and the income statement reports along with the statement of cash flows. It is important to review all these reports together for proper cash flow management.
5. Peace of Mind
When you are properly managing your finances for tax compliance and reporting, you can more easily analyze what is going on in your business and make timely decisions. Creating, following, and tracking your budget helps manage your cash flow. All these ultimately benefit your overall peace of mind. The peace of mind that you are paying to correct amount of taxes, you are properly accounting for all your business transactions, and you will have the cash in your business when you need it.
Bookkeeping is important and essential for your business and needs to be a part of your everyday business tasks. The proper management of your bookkeeping is imperative to the success of your business. Poor bookkeeping can lead to being turned down for financing, a negative commercial credit rating, lost tax deductions, and an inability to pay bills on time. There are many benefits to properly managing your bookkeeping, but these 5 benefits are important and essential in your business.
If you need help with properly managing your bookkeeping, please check out our services page for more information on how we can help you.