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Why Bookkeeping For Small Business is Vital (10 Top Reasons)

30-Nov-2022

Updated: 27 June 2024

Small business owners sometimes underestimate the importance of bookkeeping. There is a general perception that hiring a specialist bookkeeper is an extravagant expense. Consequently, unable to gauge or perceive the impact on their company’s financial well-being, they tend to settle for someone passable.

Precise bookkeeping and accounting for every dollar is non-negotiable for a business to be successful, however!

As an entrepreneur, you’ve got so many things to take care of. When you try to do everything on your own or leave it to someone less adept, it can bring trouble. Isn’t it a profound enough rationale why bookkeeping for small business should be executed by the well-qualified?

Read on to find out some more compelling reasons to onboard an experienced in-house resource or outsource expert bookkeeping services for your business.

The Need For Small Business Bookkeeping

Books of accounts are the first and fundamental step to maintaining accurate financial records.

You can streamline and optimize your business better when you carefully log every aspect of all transactions in the journals and ledgers on daily basis unfailingly.

Let’s dig in more!

1. Track Your Transactions

Businesses must keep a record of daily transactions. And a small business should also not put it off until a later date. You can make sure all your customer invoices (accounts receivable) and vendor invoices (accounts payable) are processed smoothly with daily recordkeeping.

Also, you can trace all bank transactions without a hitch. You won’t miss out on any credit transactions as well. Accurate and timely financial dealings are keys to trustworthiness in the business world, right?

2. Track Profit and Growth

You can assess the state of your business finances and cash flow in great detail when bookkeeping is done correctly. You can pinpoint exactly where your money is going – is your business profitable or not?

But it’s difficult to make a fair assessment without all transaction data! Bookkeeping also supports business development. The data mine enables you to observe trends and gain a good understanding of your business cycles.

3. Books Help You Budget

Budgeting becomes easier when you maintain your accounts with proper bookkeeping. Since you have accurate and organized income and expense data at your disposal, you can easily review your financial resources at any given point in time.

The budget thus prepared serves as a perfect financial roadmap for your business to plan for future spending and estimate resources to cover those expenses.

Graphic: Small Business Bookkeeping Benefits

4. Tax Preparation and Filling

All qualified business establishments have to file and pay taxes on received income in the assessment year, as per the applicable laws. Tax preparation and filing can grind you heavily, especially if you’re not an expert yourself or you’re short on time.

Many small business owners scramble through data compilation and paperwork when the tax deadline is near. Why not leave the heavy lifting to a professional bookkeeper to make the entire process simple, easy, and error-free?

Some interesting facts:

Employment taxes for small businesses in the US are levied at the federal, state, and local levels.

UK corporate tax laws mandate small businesses (with profits beyond a threshold) to make National Insurance contributions (NICs).

Currently, there are no local, state, or provincial taxes on [corporate] income in India (Source: PWC).

Systematic recordkeeping and well-maintained books help you avoid last-minute hassles and potential tax penalties for your business.

5. Quick Internal Revenue Service (IRS) Audit

A business may encounter an unforeseen situation when the Internal Revenue Service or some other relevant local authority decides to examine its tax filings.

For instance, if you’re running a business in the United States, you could receive a notice from the IRS authorities for audit. You’ll have to furnish all the required information within a stipulated time in that case.

If your books are well-organized and up-to-date, you can relax. But if your books are incomplete and messy, it will unnecessarily prolong the auditing process. Also, expect penalties in case you’re unable to comply. But with an experienced bookkeeper or outsourced services by your side, you can avoid such situations

6. Provides a Business Snapshot

Bookkeeping allows you to log all the financial records in a single central system. Financial statements prepared from meticulous books of accounts are an excellent source of critical business insights.

Financial statements can be made for different durations for analysis for respective periods. This way, you get a snapshot of your business at regular intervals and understand what’s happening with your finances, including cash flow, accounts receivable (accruals), and bank accounts. As such, you can also track your business performance over time.

7. Bookkeeping for In-Depth Analysis

The best thing about bookkeeping is that it provides you with a solid foundation for detailed business analysis. By meticulously recording your financial transactions, you build a clear picture of your finances in the general ledger.

Of course, any missing piece can ruin the analysis of the overall business performance. Bookkeeping also makes you aware of the areas of your business that need urgent attention. The deep analysis enables you to identify shortcomings and take remedial action.

8. Enhanced Focus on Business Strategy

Business owners are always figuring out different ways to grow and keep financial stress at bay. Both tactical and strategic planning is important to best utilize your finances.

Proficient bookkeeping takes you closer to your goals. Financial data and other information in your books enable efficient planning and monitoring of efforts that need financial backing.

Also Read : Small Business Bookkeeping Guide (Simple and Practical Tips)

9. Facilitates Investor Reporting

Looking for investors’ support for your small business? They will want to look into your financial statements, bank account summaries, and other data. It helps them evaluate the value of their investment.

So, leverage your bookkeeping expert to prepare flawless financial reports, be they cash flow statements, income statements, balance sheets, etc., to show your company’s value.

Well-organized financial information can put investors at ease and they can trust you better.

10. Gives You Peace of Mind

Untraceable financial events can create panic in any company. Poorly maintained books can hurt your business operations while looming tax deadlines can leave you flustered.

No business owner wants such issues to weigh them down. If you’ve appropriate and accurate business accounting & bookkeeping in place, you will be stress-free.

Want to avoid the hassle of bookkeeping? You can leverage Centelli’s expert bookkeeping services. Here’s a glimpse of what our full service bookkeeping portfolio→

Graphic: Centelli's Full-Service Bookkeeping Portfolio

We cater to businesses of all sizes across the USA, the UK, Europe, and India.

The Bottom Line

Your bookkeeping should be meticulous, whether you are a start-up or a small business. Of course, there are several small business bookkeeping software options at your disposal, such as QuickBooks Online, Xero, Sage 50, and Zoho. However, you may still be better off hiring expert staff or a bookkeeping service to fully leverage these tools.

Because only accurate financial records can give you a clear understanding of your business’s financial health. Besides helping you meet compliance, they are also useful for future reference.

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