What were your last month’s expenses? What revenue did you make? Did you break even? These are questions good bookkeeping could answer. But first, how well do you understand bookkeeping? Does it work for every business?
What Is bookkeeping?
Bookkeeping is the practice of recording incoming and outgoing cash flows.
Why is bookkeeping important?
Here are some of the ways that bookkeeping comes in handy for you:
- Helps you to Budget
Budgets offer financial guidelines in any business. They help you assess money in Vs money out. This tells you whether your business is on track.
- Ease in decision making
Best decisions are informed decisions. Bookkeeping helps you see the whole picture when it comes to your business. It helps you strategize and make the right decision for potential business growth.
- Business evaluation
With proper bookkeeping, you can assess how well your business is performing. What the strengths and weaknesses of your business are. Are you making profits or losses? Where to improve and what efforts are required.
- Reporting and attracting investors
When someone invests in your business, it’s important to show them what their money has been used for, whether properly managed and the returns. Bookkeeping offers reports for both existing investors and to attract new investors.
- Managing cash flows
Cash flow is the number one problem that you’ll face without proper bookkeeping. It’s important to know how your money is coming in and where it’s going. This will help give some sort of peace of mind and let you make better decisions.
- Effective tax compliance
Filing taxes is stressful to anyone without proper documentation. Think about sifting through a pile of documents just to get one receipt. Proper bookkeeping will save you the hustle and provide detailed documentation. Filing taxes could be a breeze in the park!
- Ease Audits
Bookkeeping makes it easier for internal and external audits to be conducted. It also shortens the time required for an audit.
- Meeting government requirements
The government requires every business owner to keep proper financial records. You wouldn’t want to find yourself on the wrong side of law.
We’ve established how important bookkeeping is for the successful running and maintenance of a business. Here are few tips to get you started:
- Always separate your personal finances from your business– mixing the two will lead to confusion when bookkeeping.
- Reimburse yourself for expenses– personal money spent on a business expense should always be returned as it’s not part of your capital.
- Keep receipts– never throw out your receipts they help determine what you spent money on.
- Have an accounting system– it could be expensive in the beginning but it lessens the work and you’re able to pull reports faster.
- Pay yourself a salary– it doesn’t have to be a lot but it lets you avoid dipping into the business funds.
- Prepare a budget at least quarterly– this helps keep your financials on track. Analyse your accounting report- this will show you how the business is performing.
Sources: YoungMogul, fitsmallbusiness, easybooksapp, nationalbusinesscapital, corporatefinanceinstitute, booxkeeping, kpi