Behind every good business is a great book keeper – ABN Blog
Bookkeeping is the recording of the financial transactions and information pertaining a business on a day-to-day basis. It involves recording, storing and retrieving financial transactions for a company, non-profit organization as well as for individuals. Financial transactions and tasks in bookkeeping include billing for goods or services, recording receipts from customers, verifying and recording invoices from suppliers. It also involves paying suppliers, processing employees’ pay and related government reports, monitoring accounts, recording depreciation and providing financial reports. Below are reasons why bookkeeping is important for your business:
1. Improved financial analysis and management
Start managing cash flows as soon as the business is established. Proper bookkeeping allows you to analyze and manage your cash flow. This means you pay invoices on time to vendors and you know where your outgoing money is being spent. Also, you can better keep up with the money coming in and going out. Once there is a delay in the invoices, there is going to be no outgrowth on payments made. When invoices are delayed, customers delay payments. If there is no follow-up then the business will fail. With bookkeeping, all these are taken care of. Create an organized system that can easily be followed and ensures that the business runs smoothly.
An accurate bookkeeping systematizes the follow-ups and invoicing of your business whilst paying your suppliers on time. The stronger your financial management, the greater the opportunity you have to maximize your profits in the short term. Also, you grow your capital value in the long term. Bookkeeping looks at the relationships between key numbers on a company’s financial statements. After the ratios are calculated, they can be compared to industry standards and the company’s past results. These are also compared to projections and goals to highlight trends and identify strengths and weaknesses. The bottom line is that it gives you valuable feedback which yields profitable results for your business.
2. To evaluate business performance
Bookkeeping helps you evaluate the performance of your business. With bookkeeping, you will know whether your business is stagnant, depreciating or growing. When you know the performance level of your business, you can strategize and make certain adjustments on your business. Just by using the information on your Balance Sheet and Profit & Loss, you can easily check if the firm is doing well or not. You will discover possible flaws in your plans and unearth issues that could ruin your prospects. Thus, business planning is made so much easier and efficient.
Proper bookkeeping gives your company a reliable measure of its performance. It provides information on general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spend extra time and money on maintaining proper records. A bookkeeper’s analysis of business finances will help to guide the overall business strategies. Plans to expand, invest and budget will all be influenced by the existing financial records. Business planning cannot be done successfully without looking over financial records, hence bookkeeping is an important part of business expansion.
3. To track cash flow
Bookkeeping isn’t just about maintaining financial records, it’s about analyzing them too. Maintain a healthy cash flow in order to continue paying staff and suppliers. Failing to do so could prevent the business from functioning as normal. It leads to losses and in extreme cases, liquidation of the company. Adopt continuous bookkeeping. It ensures that your cash flow is healthy and the business remains strong. Record your transactions and business events to plan ahead easier. You will be able to meet deadlines and pay everything in time.
In order to grow, have an effective cash flow management. Ensure this through proper bookkeeping. More importantly, expenses that you may want to claim can be tracked and organized better with bookkeeping. This is because business expenses must be submitted regularly. Proper bookkeeping which uses a new modern cloud technology can transform a business from a small one to a large one.
4. Tax obligations are fulfilled on time
Bookkeeping ensures that all important financial documents, in-comings and outgoings are thoroughly recorded in order to pay corporate tax. Without appropriate bookkeeping throughout the financial year, it’s difficult to file an accurate tax return. Incorrect terms could mean the business overpays which could put pressure on cash flow. Underpays could result in extra demands for payments with interest. Furthermore, a Value Added Tax(VAT) registered business has to submit a VAT return every few months detailing VAT charged and paid. Hence, bookkeeping is essential to keep up with these requirements.
Also, it’s not enough to simply submit tax returns and VAT returns. Maintain business records in order for them to be audited. This ensures that the business is paying adequate tax, wages and National Insurance contributions. Bookkeeping ensures that all records are kept up to date, with every transaction appropriately recorded to prevent any variation with previously submitted tax returns. Bookkeeping helps you keep a track on all the information and documents required to accomplish your annual taxes. When tax time comes, you won’t rush everywhere to hunt for your bills or try to remember your expenses. An organized Balance Sheet, Profit & Loss and Cash Flow also makes filing your Tax Returns a lot easier.
5. For improved decision making
Our bookkeeping services in Zimbabwe allow you to make proper decisions concerning your business as well as to plan ahead easily. It highlights financial trends as well as to show company weaknesses and strengths. Bookkeeping ensures that there is easy access of financial records making it easy to plan for your company’s investment future. With a bookkeeping system, you can measure your progress to evaluate previous year to current year progress.
Also, you can observe whether you make are making profit or loss and whether you may increase investment or cut off expenditure. The information gathered helps you decide what and how you will do it in the future and the strategies you may need to apply. A lack of process clarity guarantees a slower path to the desired outcome. Step logically through a proven process and waste less time and make use of the right resources at the right time. If you follow a muddled process you are most likely to waste resources and time on activities that won’t bring profit. As a result, bookkeeping is key to making the right financial decisions of your business.
6. Helps you to identify problems earlier
Have an updated bookkeeping system. Any problems that are future related to the revenue or cash flow will be identified early. If your bookkeeping is lacking behind it could be problematic. Proper and effective bookkeeping helps in identifying problems early which if left unchecked could be fatal for the business. Early problem identification helps stakeholders and stockholders to eliminate the root cause that prevents the achievement of organizational objectives or goals. Hindrances to organizational goals need to be identified at an early stage before they cause much damage. This is to maintain a good reputation.
7. For easy reporting to investors
Have an appropriate bookkeeping system to manage day to day activities and to keep the organization running effectively. It may appear a burden but it is vital not only to prosper but also survive in today’s harsh economic situation. A precise and consistent bookkeeping allows you to report and share your financial status to the investors without hesitation. As a result, investors will have confidence on the financial health of your business.
Everything that your investors would require such as graphs and lists of data, can be easily presented. Following that, bookkeeping informs investors on each and every small thing that you do. This leads to better rapport and a high probability of receiving more funding. When you keep records of transactions, you are able to give a report to an investor on the development of business and financial growth. It becomes much easier for all information and data to be provided as info graphics and charts to answer whether the business is progressing or not.
8. For valuable financial reports
Taking a loan or other form of banking financing requires valuable company financial data. Banks will check your financial data for proof that the business is in good economic position. They will want to see copies of cash flow budgets, financial statements and other financial data. This is because bookkeeping can differentiate between attaining success or bankruptcy. Bookkeeping ensures that your financial reports are valuable because it shows financial trends. Analyzing the financial statements from quarter to quarter and year to year helps you to see trends in growth. You might have losses in the early years while developing products and a customer base. At the same time, statements prove whether you are meeting projected estimates.
9. To stay organized
Stay organized. It makes a good business. It helps you react, think and work better. With paperwork everywhere in the office, nothing can be found easily which leads to frustration. Do not be someone who searches through piles of paperwork for that one invoice or bank statement. This problem can extend to the virtual office as well. Bookkeeping thus organizes folders to keep track of important bills or emails which saves time.
Good organizational skills frees up much-needed minutes every day. Working in an unorganized environment make you feel constantly on edge. Not knowing where to look for information, sorting through unorganized paperwork creates a stressful workplace. That stress may extend into your personal life and lead to job burnout. Implementing good organization systems like bookkeeping reduces stress and gives you more time to enjoy life outside work. Bookkeeping increases productivity. Being organized, saves you time to look for things. You will have more time to work on important tasks. You can improve the flow of communication between you and your team. After all, better communication leads to better results.
Making good decisions when one has complete data, facts and knowledge is not leadership, its bookkeeping. Bookkeeping is important in business funding, growth and survival. It makes makes you organised. With bookkeeping, you can locate a document from five years ago. If things are organized, tracking documents is easy and you will always be on time consistently as punctuality is a necessity in business.