What Is Bookkeeping, and Why Is It Important?
It's not uncommon during the launch and growth stages for a company's financial books to be an after-thought, something that you'll get to when you get a chance or something that can wait until you are "big enough". This approach can cause unnecessary stress, extra expenses and can actually hinder your financial growth. Taking some time to set up a foundation for tracking your financials can prevent this problem.
What does this all mean? Bookkeeping is the process of keeping financial records for a person or business. Accounting is the process of analyzing and reporting on the financial transactions of a person or an organization.
Easy, right? You’re probably yawning, but bookkeeping and accounting are important functions of your business. Keep reading to see why you need bookkeeping, and how it can help you out down the road.
Accurate bookkeeping will help you answer questions such as:
-- What are the start-up costs of my business?
-- What are my revenue streams?
-- What is the timing of my financial needs?
-- What is my game plan for unexpected costs?
-- What are my short- and long-term financial goals?
Is my business profitable?
Why do you need to have up to date books for your business?
-- To understand the financial health of your business
Is your business turning a profit? Are clients taking a very long time to pay you? Do you have expenses that could be trimmed? You won't know the answer to these questions if you don't have up to date and accurate records.
-- People are investing in you and you are investing in your business.
Whether that money is coming from your family, venture capitalists, or a bank, people have invested in you and your success. To show you are responsibly handling these investments, you need to be able to provide an accurate snapshot of the financial health and value of your business.
-- To file accurate tax returns
Accurate and up-to-date bookkeeping will allow you to identify deductions that may otherwise be missed, thus saving you money at tax time.
-- To save you money in the long term
Getting your books in order soon after starting your business will help save you massive fees for accounting services later on. Setting up early will also save you the hassle of manually entering transactions or searching for a stray receipt from a business purchase 6 months ago.
-- To help secure additional funding in the future
If you have clean, auditable accounting records, you will have an easier time applying for loans and lines of credit. You will also be able to show potential investors how you are progressing financially without spending hours tearing your hair out over spreadsheets.
-- To achieve long-term goals
Bookkeeping will provide you the insight you need in order to make informed decisions that will determine the future success of your business. If you are hiding receipts in a shoebox under the desk with the dust bunnies, you will never know how to optimize your spending, or how to cut an expense when necessary.