Bookkeeping is critical for any business, small or large. While it is primarily associated with financial data entry, it’s more than just spreadsheets and numbers. It is the art of timely recording and organising your business’s financial transactions and documents. These documents can be in any form, such as bills, receipts, purchase orders, or invoices.
Not only does bookkeeping help you measure your expenses and revenue, but it also helps you to make informed financial decisions that will benefit your business in the long run.
Bookkeeping might seem like an effortless process of entering your day-to-day transactions into software. However, completing this task seamlessly requires knowledge and effective management.
In this article, small business owners will learn how bookkeeping impacts their business and propels its growth.
Top 7 ways in which bookkeeping impacts your business
There are two types of bookkeeping – single-entry and double-entry. Single-entry bookkeeping records transactions as either incoming or outgoing funds. Double-entry acknowledges the two sides of a transaction – for example, when selling a product, you lose inventory but gain money. Depending upon your requirements, you can proceed with either of these types.
Whether you choose single-entry or double-entry bookkeeping for your business, it will have the following positive impacts on your business if executed correctly.
1. It will help in maintaining detailed records.
For your business to thrive and grow in today’s fast-moving environment, it is necessary to keep your financial record books updated. The records will serve two primary purposes:
First, they will help you in monitoring your business accounts and finances.
Second, the up-to-date records come in handy at the time of auditing when you require your financial statements.
2. A bookkeeper will ensure your accounts and books are compliant with the law.
All informed bookkeepers comply with current laws. Thus, you will have peace of mind that your accounts and books are compliant with any recent legal changes. This further avoids any kind of compliance issues during the tax season.
3. Your cash management improves.
Cash management remains a challenging task for many small businesses. However, competent bookkeeping can come to the rescue here, as a bookkeeper ensures that you always stay at the top of your money game.
Bookkeeping keeps you in the loop about how much money is flowing into your company, as well as how much is going out and in what ways. This is called cash flow. As a result, you get to:
- Keep the cash going out under watch,
- Make profit projections, and
- Manage your customers’ and vendors’ accounts.
Additionally, effective bookkeeping helps in budgeting, another important aspect of cash management. This can assist in regulating your expenditure.
4. Bookkeeping helps your business’s financial analysis and planning.
When you are running a business, you must analyse your performance regularly. This will help you know where you are performing well and the areas that demand more focus.
Above all, your financial analysis is significant. This is because it helps you identify the key areas where you can invest further and earn more. Furthermore, applying for a business loan in the future (if the need arises) is easy when you are fully aware of your current financial situation.
5. Payroll processing becomes an easy task.
Another significant impact of bookkeeping is on the payroll process of your business. This is an important function that involves evaluating your employees’ “net pay” after considering applicable taxes or deductions.
The more employees your business has, the more challenging and time-consuming the payroll process can get. However, bookkeeping simplifies this process and ensures timely payment to all.
6. Eliminates tax penalties.
No small business wishes to invite tax penalties from the Australian Tax Office (ATO). A few instances where tax penalties are inevitable are:
- You failed to lodge the return or statement on time,
- You were unable to present your income report,
- You did not meet other tax obligations, among others.
Considering their magnitude, you surely do not want to spend your hard-earned money on avoidable penalties. That is where professional bookkeepers come into play. They will take care of the timely submission of all your statements, reports, and other documents.
In a nutshell, you get more time to focus on your business operations, whilst a bookkeeper takes care of the payroll, taxation, and other financial aspects of your business.
7. Your financial decision-making improves.
Another impact of hiring a bookkeeper is the considerable improvements in your decision-making, revolving around your business’s finances.
Without any knowledge of your financial health and cash flow, you may resort to poorly informed decision making. As a result, you may spend too much or too little. Bookkeeping will help determine whether you have the capital to invest in various projects.
Hence, you make worthy financial decisions when you are fully aware of your business’s finances through up-to-date records, cash flow, and books.
The Final Verdict!
As a business owner, you should devote your time to managing your business’s major operations. If you spent all your time on payroll processing, billing, or invoicing customers, or tracking expenses, would you have any time left for running the business?
Handing over the above duties to professional bookkeepers is a much better option. Not only will the bookkeeper accurately execute the above operations but will also use their expertise to help your business grow to new heights.
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