What is Bookkeeping?
Bookkeeping is the day-to-day management, organization, and recording of financial transactions. Many people confuse accountants and bookkeepers. It’s a common mistake because the functions seem similar.
A bookkeeper, though, is more involved in the capture of the data. They may know how to prepare financial statements, but that’s typically not their function. An accounting firm focuses more on producing audited financial statements. They may have bookkeeping departments within the company to capture the records for the client. Hiring an accounting firm to do the bookkeeping is typically a far more expensive way of approaching this task.
Most companies choose to have someone on hand to capture the information. They then turn this data over to the accountants.
Need of Bookkeeping
For a business, keeping an accurate record of income and expenses is crucial. We can’t overstate the importance of bookkeeping. You need accurate records to make the right business decisions.
More important, however, is that you have little hope of accessing financing and loans without an audited set of financials. Fastidious bookkeeping ensures that your accountant has accurate records to base your financial statements.
Importance of Bookkeeping
Furthermore, you need accurate figures when filing tax returns. The IRS doesn’t accept excuses like, “I fell behind on my paperwork.” Worse still, if they catch you submitting inaccurate figures, you might be in trouble for tax evasion. That carries severe penalties and maybe even jail time.
Accurate Price Setting
How much does it cost you to produce one unit of product? You’ll probably easily rattle off the cost of raw materials. But there’s more to your expenses than that. What about marketing, and other costs like shipping, or fuel? Without an accurate record, you can’t price your goods correctly.
We’ve all been there – we’ve had piles of receipts stashed in boxes, cubby holes, etc. It’s convenient to put them away and deal with them later. Unfortunately, later typically means when tax season is looming. Then it’s a mad scramble to get the items filed on time.
If you wanted to look up the price your supplier charged a few months ago, how easy would it be? Bookkeepers organize the financial information into the correct sections. They also create a filing system that will help you lay hands on any document quickly and easily.
Analyzing the Business’s Performance
You might think that you can keep track of how well your business is doing in your mind. In the real world, you have other things to think about. An organized accounts system allows you to access accurate information fast.
Are you paying your accounts on time? If not, you’ll damage your credit rating. Not keeping track of this could also mean missing out on early settlement discounts. Besides which, who’s to say that your supplier’s system is accurate. You need to check these things.
Keeping track of the accounts receivable is essential. If you don’t, you won’t be able to manage your cash flow properly. What’s more, clients might start taking advantage of your slipshod approach and pay late. It’s difficult to break them of that habit once it starts.
If you have an accurate record, you’ll know when to plan for lulls in business and hectic periods. If you have an actual record of accounts receivable, you can use a factoring service to tide you over in difficult times.
Investors are impressed by your enthusiasm for your business. But they’re more interested in the bottom line. They want to know that your business is a good bet. Without solid financials to present them, you’re dead in the water.
Even when you’re running a small business, your clients have certain expectations. If you’re recording payments late or not able to send clients up-to-date statements on-demand, you’ll look like an amateur.
Maybe you don’t need any investors right now. That’s great, but what if you want to expand your business in the future? Or you want to list it as a public company? If you don’t have financials for the years leading up to this moment, investors might give you a wide berth.
Most employees are honest. That said, even the most honest person might be tempted to steal if they’re in a bad situation. The chances of theft increase if they think they’ll get away with it. Keeping a close eye on finances allows you to pick up these discrepancies fast.
Keeping accurate financial records is an essential part of running a successful business. It allows you to:
- Hone your profit margins.
- Keep track of the profitability of the business.
- Provide accurate figures to the IRS. Remember, these were the guys that took down Al Capone when no law enforcement agency could.
- Keep your account payments out on the track.
- Manage your cash flow better.
- Make informed decisions.
- Provide information that investors are interested in.
Considering all the areas that are impacted by accurate financial records, no business can afford to ignore bookkeeping. So, if you can’t get to the paperwork, hire someone from Perth Mobile Tax to help you. It’s the smart business move in the long run.