Why Is Bookkeeping Important to Running a Successful Business?
Most business owners don't go into business thinking, "I can't wait to do the bookkeeping!" In fact, for many, it's a loathsome chore that gets put off until the night before a tax deadline.
But as any business owner eventually finds out, you can't run a business without doing the bookkeeping. From maintaining accurate records to producing meaningful reports, bookkeeping is an essential function within any business.
Let's take a look at three major reasons why no business can survive without a proper bookkeeping function.
Keeping accurate records of company expenditures helps paint a picture of year-round spending patterns. This is helpful for things like budgeting, projecting cash flow, and inventory management.
If you don't have a historical record of how and when your company makes purchases, it can lead to things like cash crunches, inventory shortages, and budget shortfalls.
Processing and recording vendor invoices (payables) is a hugely important aspect of the bookkeeping function. And woe to the business who earns a reputation for late payments. Not only will it rack up late fees and interest charges, but vendors won't extend attractive terms if they think you aren't going to pay your bills on time (or at all).
And if your bookkeeping systems are disorganized and ineffective, and the company's credit has suffered as a result, it's going to be difficult to get favorable financing terms or unsecured lines of credit when needed.
Without the bookkeeping function, you couldn't produce the financial reports you need to make good managerial and operational decisions. And poor bookkeeping can mean skewed numbers so that reports become meaningless at best and disastrous at worst.
Additionally, accurately tracking income and expenditures ensures these items aren't under- or over-reported on tax returns. Which, if not reported correctly, could mean having to pay penalties and interest or even (gulp!) getting flagged for an audit.
Plus, being able to produce accurate reports with current numbers is essential for businesses applying for loans or lines of credit. You can't expect to secure financing without them.
If a bookkeeper isn't tracking how the books reconcile to cash according to bank statements, you could end up paying a fortune in overdraft fees.
And looking at an ATM receipt or online bank balance doesn't indicate how much cash you really have. You need a bookkeeper to keep track of all outstanding items so you know how much cash is actually available for things like fixed expenses, payroll, and capital purchases.
Another function of bookkeeping is to reduce the likelihood your business falls victim to fraud. a Bookkeeper should ensure charges that show up on bank and credit card statements are legitimate. Without a bookkeeper scrutinizing these charges, you could end up paying fraudulent charges without knowing it.
An experienced bookkeeper will also be able to spot unusual activity so that you're less likely to fall victim to fraud whether from outside the company or within.
Many small businesses don't have the resources to hire a full-time, in house bookkeeper and in today's world, they don't have to. Outsourcing has become a standard solution for businesses that want the expertise of an experienced bookkeeper without the hefty price tag that comes with adding to headcount.
The Business Builders has helped countless business owners with their bookkeeping function in a way that's both convenient and cost-effective. If your current bookkeeping system isn't producing the results you need, why not give us a jingle? We'd love to talk!
But as any business owner eventually finds out, you can't run a business without doing the bookkeeping. From maintaining accurate records to producing meaningful reports, bookkeeping is an essential function within any business.
Let's take a look at three major reasons why no business can survive without a proper bookkeeping function.
#1 Tracking Purchases & Payables
Keeping accurate records of company expenditures helps paint a picture of year-round spending patterns. This is helpful for things like budgeting, projecting cash flow, and inventory management.
If you don't have a historical record of how and when your company makes purchases, it can lead to things like cash crunches, inventory shortages, and budget shortfalls.
Processing and recording vendor invoices (payables) is a hugely important aspect of the bookkeeping function. And woe to the business who earns a reputation for late payments. Not only will it rack up late fees and interest charges, but vendors won't extend attractive terms if they think you aren't going to pay your bills on time (or at all).
And if your bookkeeping systems are disorganized and ineffective, and the company's credit has suffered as a result, it's going to be difficult to get favorable financing terms or unsecured lines of credit when needed.
#2 Reporting
Without the bookkeeping function, you couldn't produce the financial reports you need to make good managerial and operational decisions. And poor bookkeeping can mean skewed numbers so that reports become meaningless at best and disastrous at worst.
Additionally, accurately tracking income and expenditures ensures these items aren't under- or over-reported on tax returns. Which, if not reported correctly, could mean having to pay penalties and interest or even (gulp!) getting flagged for an audit.
Plus, being able to produce accurate reports with current numbers is essential for businesses applying for loans or lines of credit. You can't expect to secure financing without them.
#3 Banking
If a bookkeeper isn't tracking how the books reconcile to cash according to bank statements, you could end up paying a fortune in overdraft fees.
And looking at an ATM receipt or online bank balance doesn't indicate how much cash you really have. You need a bookkeeper to keep track of all outstanding items so you know how much cash is actually available for things like fixed expenses, payroll, and capital purchases.
Another function of bookkeeping is to reduce the likelihood your business falls victim to fraud. a Bookkeeper should ensure charges that show up on bank and credit card statements are legitimate. Without a bookkeeper scrutinizing these charges, you could end up paying fraudulent charges without knowing it.
An experienced bookkeeper will also be able to spot unusual activity so that you're less likely to fall victim to fraud whether from outside the company or within.
Bringing in the Experts
Many small businesses don't have the resources to hire a full-time, in house bookkeeper and in today's world, they don't have to. Outsourcing has become a standard solution for businesses that want the expertise of an experienced bookkeeper without the hefty price tag that comes with adding to headcount.
The Business Builders has helped countless business owners with their bookkeeping function in a way that's both convenient and cost-effective. If your current bookkeeping system isn't producing the results you need, why not give us a jingle? We'd love to talk!