Why Regular Bookkeeping Is Crucial To Your Business Strategy
why regular bookkeeping is crucial to your business strategy November 2023
Financial information is what helps you identify whether your business has brought in profits or losses. Without accurate and up-to-date financials, it’s easy to ‘think’ your business is doing well, when in fact it really is in need of some immediate changes to help it stay afloat. Bookkeeping or financial information helps you create an effective budget for your business expenses. It also keeps you prepared for the end of the financial year, when taxes are due, and keeps your business organized.
what is bookkeeping?
Bookkeeping is a process of recording all the financial transactions of your business in a specific accounting file, regularly. The financial health of your business can be assessed by looking at one of more financial statements such as the cash flow statement, income statement, profit and loss account, or the balance sheet.
Since this is a completely factual file, that has no room for fluff, your bookkeeping data is what investors, financial institutions (such as banks, insurance agencies, etc.) and the government (to collect taxes, provide support, etc.) will look at before entering into any kind of business agreement with.
types of bookkeeping
There are two basic types of accounting systems that businesses may choose between. These are chosen on a cash basis or accrual basis.
cash basis
A cash basis of accounting includes a single entry of all business transactions to the accounts. This system works best for small businesses. Under this bookkeeping system, you will not find records of assets and liabilities, rather you find records of cash disbursements and cash receipts. It means money comes in and goes out of your business. This system archives cash sales and business expenses that get paid when incurred. It is not conventionally used for accounts payable, accounts receivable, or many capital transactions.
accrual basis
Also called a double-entry bookkeeping system, the Accrual system is a standard method of record-keeping. Most businesses, bookkeepers, and accountants use this system. The procedure of this double-entry bookkeeping system is quite detailed and complicated contrary to the cash basis of bookkeeping. It introduces the perception of debit and credit. Hence, for every transaction, something gets received (debit) or given up (credit). The recorded transaction impacts two or more accounts. The great thing about a double-entry bookkeeping system is that it provides a complete recording of the business transactions. It is a dependable source of financial information and reasonable valuation of the performance or condition of a business.
is it necessary to track all finances?
Tracking all your finances is an essential task, right down to the last penny, and should be done every day. Monitoring your expenses through each month holds you answerable for your finances in different ways. It also provides tremendous value to you in the following ways:
- Tracking your expenses informs you about your spending (or overspending)
- It helps you stick to your budget
- It helps reach your financial goals for the week, month, or quarter
- You become more aware of your spending habits.
- Your business’ problem areas become clear along with the profit-making areas
benefits of having regular bookkeeping records
There are manifold benefits to having regular bookkeeping such as:
- You will have complete and undisputed records
- A business is legally required to maintain accurate accounts
- You get to compare your company’s position against industry benchmarks and your competitors
- Regular bookkeeping makes planning ahead a convenient process
- Can be used for immediate reporting
- Businesses can maintain better relations with investors and banks
- Financial audits are easier
- More accurate Tax estimate will be possible
- Quick business response time
- Efficient financial analysis
In the long run, you’ll find that you are able to make smarter and better-informed business decisions that can take your business from just surviving to thrive!
Bookkeeping need not be a time-consuming dreaded process at the end of each day. If you need help with your bookkeeping, give us a call today!
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