Bookkeeping is sort of an underdog tool of accounting process. Would you be able to make sense of any business transaction if it is not recorded properly? Without bookkeeping or accounting, you are running a failed business.
So what is bookkeeping?
In layman terms, it is recording company’s financial transactions, on a daily basis. People usually confuse accounting and bookkeeping as one. While both are necessary for any business, they have different roles.
Bookkeeping is the recording of financial transactions, whereas accounting is the classifying, analyzing, reporting and summarizing of financial data.
However, in small businesses work scope furthers to:
- Billing of good or services.
- Verifying and recording invoices and receipts.
- Paying suppliers.
- Processing employee’s pay and recording for governmental reports.
- Recording deprecation and adjusting entries.
- Providing financial reports.
Many small businesses prefer using bookkeeping software, such as QuickBooks. Whilst it is not mandatory but in-depth understanding of software is preferred by most employers.
So, how does bookkeeping help small businesses run effectively?
Well, for starters, it helps you concentrate on your business. With all financial transactions recorded on daily basis, you can keep track of the financial health of the business. What else?
Taxes on Time
Effective bookkeeping helps you become more efficient and file a tax return every year, on time. Instead of scrambling for receipts and invoices, you can use the time to focus on the business.
Being organized is a must skill for a good businessman. With well-recorded transactions it is easier to locate and provide relevant information to IRS, Investors and lenders.
Bookkeeping helps you analyze the financial health of the business. It will give you information as to what is working and what’s not. You can focus on the strengths and work on the weaknesses.
Better Decision Making
Analysis helps you make better decision. To run a successful business you need to be in profit. With daily record, you can pinpoint the errors and solve the solution before it becomes a problem.
In order to plan the future, you would need to understand the past. Bookkeeping gives you a clear picture and plays a major role in effective planning. It is also a great tool to do tax planning. With bookkeeping as a tool, you can strategize to develop your business as per short and long-term goals.
People invest for profits and if you are not able to show any, you might lose them. An up-to-date financial statement and accessible information, investors will be able to make informed decisions.
With all the data and better analysis you can track the growth of the company. Small businesses can improve business cycles with results across periods.
Peace of Mind
Disorganized business can keep you up at night. With well-organized books and information on tips, Banks or the IRS no longer have to give you anxiety. It is good to earn money, but what’s the use if you can’t live a little.
It’s the Law
The law requires to keep financial records of the company. Any shady transactions, mismatched expenses or wrong information to the government may lead to business termination.
You don’t need not be a math genius to be a good bookkeeper, however an eye for detail is must. Knowledge of bookkeeping software is cherry on the top.
Running your own business? Equip yourself with right bookkeeping skills and in-depth know-how of the latest software at BizTech College’s diploma in accounting, bookkeeping and payroll administration.