The Importance of Book keeping for Small Businesses

Imagine not being aware of your earnings in the last deal with your customer or not having records of the sum spent on your latest office upgrade. Sounds absurd, right? All businesses, irrespective of their size, need to maintain such money-related records. However, when you run a small business and have to monitor and manage every function on your own, a few slips in your financial records are at times unavoidable. Such slips can be done away with if you have an accurate bookkeeping system.
bookkeeping for SMBs

What is Bookkeeping?

Bookkeeping refers to the practice of regularly recording a company’s financial transactions. These transactions include all business-related expenses (e.g. money spent on buying products/raw materials, salaries paid to employees, etc.) and income (e.g. payments from clients or customers). In simpler words, bookkeeping involves keeping a note of all incoming and outgoing cash flow in your business.

Gone are the days when bookkeeping for small businesses used to be a boring task that involved manually recording all money-related transactions. Thanks to cloud-based software solutions, bookkeeping is now a very simple process and does not demand long hours. Digitizing your bookkeeping operations is a popular trend among Indian SMBs (small and medium businesses). Research suggests, 50% of financial records are now being managed using software applications.

If you do not have the means to invest in an expensive in-house bookkeeping software, you may consider using an online bookkeeper as a good cost-effective alternative.

Importance of Bookkeeping for Small Businesses

Once you start running a business, you need to keep an accurate record of every rupee spent. Small businesses may ignore this to save the costs of hiring full-time accountants or outsourcing bookkeepers. However, without proper bookkeeping, they may run a bigger risk of making payroll errors, incurring tax penalties and fines, making poor business decisions, and facing problems in cash flow management. These risks can cost your businesses’ survival. And, if that argument did not sound strong enough, here are a few more reasons to convince you about the need for proper bookkeeping:

Enables Accurate Recording of All Financial Transactions

For every business, it is important to keep track of where their cash is coming from and where exactly is it being spent. Bookkeeping helps them achieve this. Proper financial records are handy and can serve as ‘go-to solutions’ to solve any inconsistency between customers, your employees, and suppliers.

Improves Financial Analysis and Management H2

Bookkeeping may help you analyze your business expenses, improve budgeting, and reduce payroll errors. Referring to your financial statements can also help you identify the products and services that bring you the highest revenue. Once you know this, you can easily focus on these revenue-drivers and boost your profits.

Analyzing your financial statements can also help you identify expenses that can be reduced, and how these saved resources can be put to better use. For example, if your company is spending a lot on advertising in print media, you can try to reduce this expense and invest the sum into more relevant and impactful forms of marketing (like social media marketing, digital marketing, influencer marketing, etc.) Click here to know more about the Latest Trends and Efficiency of Digital Marketing in E-commerce.

Useful for Tax Preparation

Bookkeeping can simplify the otherwise stressful season of tax filing for small and medium business owners. Instead of searching through piles of paperwork to find the required income proofs and other financial statements, a proper bookkeeping system provides you with a set of properly organized information. When you have your invoices readily prepared, your tax filing becomes less complex and you can easily find potential tax write-offs.

Improves Cash Flow Management

Cash flow is one of the major concerns for SMBs (small and medium businesses). Paying close attention to your books can improve your cash flow management, as it can help you easily track the cash moving in and out of your business.

Adopting cloud-based bookkeeping solutions ensures more accurate financial planning and internal accounting. They can help you to easily calculate profits and evaluate if the sum is enough to meet future expenses. In case you lack enough funds, getting notified on time can help you apply for loans or a line of credit and save your business from going bankrupt – after all ‘A stitch in time saves nine’.

Improves Analysis of Business Performance

All business owners would want to grow their business. However, poor financial records can easily slow down the growth rate. Without a bookkeeping system, you may find it difficult to have the accurate data to analyze your business performance. On the other hand, accurate financial statements can help you easily track your cash inflows and outflows. This can give you a fair idea about the strengths and weaknesses of your business, and may help you make more profitable business decisions in the future.

Easy Reporting to Investors (if any)

If you have people who have invested money in your business, you are answerable to them about its financial performance. Financial statements – the product of bookkeeping – give your investors up-to-date financial data. Besides providing your present investors with the needed information, such organized financial information can also attract potential investors.

Simplifies Tracking of Profit and Growth

Bookkeeping shows your business’s profitability. The income statement generated from your books is a measure of your business’s stability. By analyzing your financial statements, you can easily calculate your profits as well as observe trends, understand your business cycle, and compare growth rates across periods.

You now know how important bookkeeping can be for your business. It is time to opt for smart bookkeeping solutions that can save your money by simplifying your small business cash flow management.
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