7 Reasons Why Bookkeeping is Important
What is Bookkeeping?
“The activity of keeping records of the financial affairs of a business”
Even though Bookkeeping is important, not to mention, a legal requirement, many businesses fail to implement this integral process and this is one of the top reason’s businesses fail. Without bookkeeping or accounting, you are blindly driving your business.
Here are 7 Reasons why Bookkeeping is important
Bookkeeping is important because it helps with business analysis. It is a tool used by management to analyse business performance.
The product of bookkeeping is financial statements. Financial statements should be regularly generated and used for analysis.
Bookkeeping presents the past financial performance of your company. In order to plan for the future, you have to have a good understanding of the past. Tactical and strategic planning is the core of what you do as a business owner. You’re always thinking of ways to grow and develop your business. You should use the information that bookkeeping offers to focus on strategy. You can track the results of your strategy with bookkeeping and adjust goals accordingly.
- Decision making
Bookkeeping will give you the clear picture of what exactly works or doesn’t work. This type of analysis allows to focus on your company’s strengths and improve on its weaknesses.
With analysis comes better decision making. In order to make the best decisions possible, you need to have access to all available information.
- Track profit and growth
Bookkeeping is important because it shows your business’ profitability. For example, the income statement is one of the financial statements that is prepared from your bookkeeping. On the income statement, you can see if your business is profitable or not. Without this information, it is impossible to know how well you’re doing.
Bookkeeping also helps with tracking growth. Over time, you will accumulate months and years of data. With this data, you can observe trends and gain a greater understanding of your business cycles and compare results across periods.
- Financial management
Bookkeeping is important because it allows you to take control of your business’ finances. Bookkeeping paints a clear picture of how you spend money. You can see outstanding invoices owed by you or your customers. You will benefit from paying your bills on time and receiving payment for your products or services on time too. It’s this delicate balance of cash inflow and outflow that will keep your business going.
When income and expenses are properly organised, it makes it easier to review financial resources and expenses.
A budget creates a financial roadmap for your business. With a budget, you can plan for future expenses and then plan carefully to ensure you have the anticipated resources to cover those expenses.
- Peace of mind
Disorganised books can weigh heavy on your mind as a business owner. With all of the other factors of running a business, your bookkeeping should not be keeping you up at night
Not sure where to start? Set up a complimentary consultation today or check out our Bookkeeping & Accountancy competition – for a chance to win free Bookkeeping & Accountancy for your business for a whole year!