Blog Post One - Importance of Bookkeeping

Accurate, up-to-date bookkeeping is the backbone of any successful small business. No matter what type of business you operate, an understanding of bookkeeping best practices is essential for keeping your business running smoothly, now and in the future.

If learning the ropes of small-business bookkeeping sounds intimidating, have no fear. Discover the different options available to you, and why it’s so important to keep detailed financial records.

What Is the Role Of a Bookkeeper?

Bookkeeping is the part of accounting that’s concerned with the collection and organization of financial documents. This means that it is the bookkeeper’s job to gather, organize, and file every bit of data related to your company’s finances. A bookkeeper is in charge of compiling:

• Invoices

• Receipts

• Payroll records

• Bill statements

• Bank and credit card statements

• Tax forms and returns

While accounting encompasses these data-gathering duties, this field also tends to involve analyzing the numbers and making profit and loss projections. However, bookkeeping as a term doesn’t necessarily include such long-term calculations and analyzes. That said, good bookkeeping ensures that you have the numbers and data that you need to help your accountant make predictions about your business’ future, and diagnose your business’ financial health.

The Importance of Bookkeeping in a Small Business:

Tracking Profitability

Tracking your company’s profitability lets you follow your earnings over time and plan for ways to improve it in the future. Profitability measures let you easily and quickly track transactions and determine how much your business earns on inventory. Some helpful profitability ratios that let you gauge your company’s efficiency include:

• Gross margin ratio

• Profit margin

• Return on assets ratio

• Return on equity

• Return on capital employed

Maintaining Cash Flow & Improved Financial Management

As a responsible small business owner or bookkeeper, you should be aware of your company’s revenue streams. With accurate bookkeeping, you can tell how much your business is making in terms of income and track your spending to ensure that you have enough cash on hand to cover your business expenses. Proper financial records make it easier for you to analyze the financial state of your firm and determine areas that need improvement.

Bookkeeping Helps You Prepare for Taxation

If you run a start-up you can save time by recording all transactions as they come up. This saves you from tracking important financial information for the end of the fiscal period at the last-minute. With proper bookkeeping, you can determine the types of taxes and calculate the amount payable in advance.

Easier Reporting

As a business owner, you’re responsible for reporting crucial financial data about your firm to potential investors and other stakeholders. Bookkeeping programs that incorporate graphs, charts, and other visual aids make it easier to increase data precision and improve communication when you’re wooing investors.

You’re also responsible for communicating with your employees and allowing them to know the financial state of your firm. They need to know if the company is making some progress and how they contribute to its growth. Bookkeeping accounting ensures that you have the right information to talk to your team and make them feel like they’re part of the company.

Evaluate Performance & Plan for the Future

Accurate bookkeeping helps you trace your firm’s financial records and evaluate its performance levels. You can look back, see patterns, and even draw comparisons with previous business years. Bookkeeping allows you to have a greater understanding of the areas within your business where you can trim costs.

You may need to re-strategize and make adjustments to ensure you stay on top of your business.

Proper bookkeeping also allows you to determine the areas within your company that could benefit from improvements. If you’re a small business owner, it’s necessary to set projections and forecast the future of your business. Bookkeeping accounting lets you know if your small business needs extra employees or requires operational changes.