Why is Bookkeeping Important?
Without Accounting or Bookkeeping, am I blindly driving my business?
"Poor Accounting" is one of the top reasons businesses fail. All business owners have accountability, whether they realize it or not. Accountability is essential to create a thriving business. Accountability leads to improved efficiency and accuracy of work, a more positive response to role responsibilities, better problem-solving abilities, decision making, and increases satisfaction. Every business owner has a set of non-negotiable tasks for managing cash flow and ensuring compliance.
Accountability & Responsibility
Establishing accountability centers around honoring commitments made to yourself or others, delivering on that promise, and ensuring what you said you would do gets done. Whereas responsibility refers to tasks, whereas accountability relates to people. Being accountable sets expectations, invites commitment, measures progress, provides feedback, links to consequences, and evaluates effectiveness.
Always remember your grand vision for your business. Make sure you set goals and keep track of your progress. Make adjustments when necessary. Don't forget to celebrate your success! Accountability is rooted in ownership. Accountability requires you to own the choices you make and own your outcomes too.
Budgeting & Financial Management
Bookkeeping helps business owners' budget and better manage their money. When business income and expenses are properly organized, organization makes it easier to review financial resources and expenses. Budgets create a financial roadmap and the anticipated resources for the business. With a budget, you can plan for future expenses and the anticipated resources that would cover those expenses.
Bookkeeping is important because it allows business owners to take control of your business' finances. Bookkeeping paints a clear picture of how you spend money. You can see outstanding invoices owned 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. By using proper bookkeeping techniques, the delicate balance of cash inflow and outflow will keep business going.
Tracking Profit and Growth, Analysis & Better Decision Making
Bookkeeping is important because it shows business owners 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 (or not so well) your business is doing.
Bookkeeping also helps with business analysis and decision making. Financial statements should be regularly generated and used for analysis. This type of analysis allows you to focus on your business' strengths and improve on its weaknesses. With analysis comes better decision making. In order to make the best decisions possible for your business, you need to have access to all available information in a format that you can understand to make profitable decisions.
Better Cash Flow & Greater Focus on Strategy
Bookkeeping improves your cash flow. The routine recording of revenues, expenses, liabilities, and receivables, will allow you to track when your customer and vendor invoices are paid. As a business, you want to ensure that your customer invoices are being paid in a timely manner. Paying your vendor invoices should also be done in a timely manner as well. By keeping up with routine recording, you can implement better cash flow policies such as delays in payments from customers or payments to vendors.
Tactical and strategic planning is the core of what you do as a business owner. You are always thinking of ways to grow and develop your business. With bookkeeping as a tool, you are closer to short and long-term goals. By using the information that bookkeeping offers to focus on strategy. You can track the results of your strategy with bookkeeping an adjust goals accordingly.
Tax Planning & Preparation
With a bookkeeping process in place, you can have financial information ready for tax time. Instead of scrambling for receipts or invoices, all of your financial information is organized in one central place. With a good bookkeeping process in place, organization of your information makes it easier to locate and provide up-to-date and accessible information quickly. For example, if the IRS feels that your books are disorganized, they have more motivation to impose penalties. In this scenario, best practice should be through a solid bookkeeping function.
The tax filing process can also be made more efficient by simply having a bookkeeping function in place within your business. Your business has to file a tax return every year. You have to file a personal tax return every year too. As a business owner, you have to know what your business earned first before you can complete your individual taxes. Depending on the legal structure of your business, bookkeeping can help keep your business compliant by keeping your financial records separate from your personal records.
If you are looking to outsource your bookkeeping or you need help with tax planning or preparation, please feel free to contact Tax C.A.T.S. for your needs!
Marla Holly Conner