Bookkeeping is the act of organizing and storing your financial documents like journals, ledgers, income tax records, financial statements. It is a fundamental part of any business, whether a startup or a Fortune-500 company.
Surprisingly, many companies don’t give much thought to the process. They only realize its importance when their ROI takes the downward curve.
As a matter of fact, research has shown that many business fail due to poor financial management and lack of or improper bookkeeping.
If you are a little nervous about the tax season, bookkeeping will sort you out.
Why then should you do bookkeeping?
1. Helps in Business Financial Management
Bookkeeping helps your control your business finances while giving a clear picture of your expenditure. With it, you have an account of cash inflows and outflows. The report will also help you with budgeting.
Cash flow management is something any business owner who wishes to succeed must embrace. If, for instance, your invoices are delayed, you have no way of doing payment follow-up.
Bookkeeping will help systematize your invoicing, follow-ups, and be able to pay your suppliers on time.
Your business survival depends on cash flow management, which is not an easy task. The good thing is that proper bookkeeping will help you analyze and manage your cash. As a result, you get an accurate picture of your business financial position.
2. Fulfilling Your Tax Obligations
How would you feel if you are penalized for tax errors due to poor financial records?
Bookkeeping helps you track all information and documents involved in accomplishing your tax obligations.
When it comes to making your tax returns, you’ll not need to run up and down looking for receipts and invoices. You have everything on record and intact.
An organized cash flow, balance sheet, and profit& loss make filing tax returns easy and fast.
Most importantly, your tax advisor will have an easy time doing what he’s hired to do and not correcting your financial statements.
Without proper records, you may find it hard to file your taxes. This can get you in problems with the CRA, which has invested millions of dollars in auditing small businesses like you.
Do you want to avoid an audit? Do yourself a favor. Keep track of your books. Pay close attention to red flags easily noticed by CRA like outliers, revenue discrepancies.
3. You Have An Easy Time Reporting to Investors
Your investors want to see the financial position of your business after a particular trading period.
When you have accurate bookkeeping done regularly, you need not worry about reporting to your business investors.
You have all data and therefore, easy to present from your accounting books. Reporting to investors allows them to quantify the value of their investment. This means they can either invest more or withdraw their shares.
You will not only need financial records for your existing investors but also for the upcoming ones. An investor won’t join the bandwagon if they haven’t seen your financial records. And of course, the numbers should be compelling.
4. A Tool for Financial Analysis
A business financial analyst uses your financial records to analyze business performance.
Bookkeeping produces the financial statements that the analyst uses. He can determine the business’s weaknesses and strengths before he makes recommendations.
As a result, you can know whether your business is on the right track financially.
Proper financial records show you the direction your business is going and where the money is likely to be spent.
You also understand which strategies have given you more profits. Thus you can invest more and earn more.
5. It’s A Requirement by The Law
Keeping all the records of your business financial dealings is a requirement by law. Bookkeeping allows you to keep the records organized. When audit time comes, retrieving becomes easy, and you don’t have to panic.
Now that you know how vital bookkeeping is, you must take it seriously. Though tricky, complicated, and time-consuming, you will need to research how to become a bookkeeper. There are plenty of sources that will give you credible information.
If you don’t have the time, hiring a reputable accounting firm is the only escape route. Still, you get more time to spend on other valuable business activities.