One of the most beneficial choices any business makes is to implement a strong bookkeeping plan. Overlooking the need for a well-planned bookkeeping strategy leaves you vulnerable to mistakes, audits, penalties, missed investment opportunities, and much more. In fact, it is impossible to manage a business successfully without accurate records and sound financial management. 

If you’re still wondering if you should get serious about bookkeeping, read on as we reveal several ways bookkeeping will strengthen your small business. 

1. Helps You Budget

One prime benefit of bookkeeping is that it helps you with your budget. Since budgets are necessary for ensuring financial stability, consistency in spending, and more strategic investment, you have to maintain consistent, accurate financial records. 

Responsible bookkeeping allows you to assess financial resources and better manage business expenses. You can use your reports to make more informed financial decisions and plan for the future.

2. Essential for Tax Preparation

Another reason businesses of all sizes need to ensure proper bookkeeping is because it’s required for tax preparation. The organization of records and the access to financial data that bookkeeping provides allows you to file accurate, timely tax documents, avoid penalties and stay prepared for an audit if one should arise. 

When you keep a proper record of all earnings and expenses, you’ll avoid the mad dash and scramble as you rummage around, trying to find exactly what you need. Staying on the IRS’s good side is always wise for any business. 

3. Organization

Small businesses require bookkeeping just as much as larger businesses. There is a need to organize financial records to ensure that you are able to keep an eye on the financial health of your business at all times. 

Successful business leaders know just how important bookkeeping is for ensuring that everything runs smoothly day to day. You need to be able to access financial information anytime you want. This is especially true when applying for a loan or grant, preparing for an audit, or considering an investment.

Organization also keeps you in good standing with your employees, helping you avoid paycheck, tax, or deduction errors that might damage your working relationship with them. 

4. Business Analysis

When you maintain a proper bookkeeping plan, you will be able to create and analyze financial statements. This enables you to manage cash flows, profit and loss, and assess business performance. You’ll have the information you need to identify strengths and weaknesses that you would otherwise be unavailable. 

These perks give you the tools you need to make decisions based on the most up to date and accurate financial data available. 

5. Assists with Planning

Bookkeeping helps with planning. Only when you have financial information available by following the accrual method, will you be able to manage your bank accounts, debit and credit card expenses, and overall financial health.

6. Attracts Investors

If you want investors to fund your business or business partners to consider linking up with your endeavor, you’ll have to provide them with information about your company’s financial performance. 

This is only possible when you follow proper bookkeeping practices. Investors value their time and are interested in companies that provide a product or service that they can analyze using detailed financial data. Through bookkeeping standards, you’ll be able to offer updated information to attract investors and encourage them to consider your business.

7. Necessary for Financial Management

To keep your business finances under control, you need to get your bookkeeping in order. You must have access to reports that highlight all your income and expenses. Otherwise, you can expect your business to struggle, since you never quite know exactly what’s going on with your money. 

It is also important to keep in mind that banks can only help you out if you prove to them ‌you know how to manage your finances.

8. Prevent Stress

When you lack a clear picture of your organization’s financial health, you can guarantee that stress will follow you around wherever you go. Running a business is difficult enough without worrying about costly mistakes, tax problems, audits, overspending, and other financial issues. 

Don’t forfeit your health and wellbeing by trading it in for extra hours of worry. Get organized, make a plan, and follow it, so you can finally relax a bit.

9. Track Growth

Small businesses also require bookkeeping for tracking growth. If you want to ‌keep track of profit, you will need access to accurate financial information, which can only be obtained through proper bookkeeping. 

Without applying sound bookkeeping practices, you can’t so much track your growth as guess. Estimating your trajectory based upon less-than-accurate figures can create a world of trouble for you. Keep it all in the open and at the forefront of your management efforts. You’ll have the tools you need to spot patterns, track your path, and make quick and effective decisions. 

10. Improved Cash Flow

As a small business owner, you need to realize that bookkeeping plays a huge role in the management of cash flow. Bookkeeping provides you with all the information you need about your customers and clients, what they owe, any other debts, and the motivation you need to follow up on unrealized payments.

Keeping the books means you’ve got an eye on where the money flows. You can pour more energy and resources into your strong areas to attract even more business, develop new marketing plans, implement strategies to keep your customers happy, and strengthen additional areas that might be struggling but have potential. That way, they can provide for your organization year after year. 

11. Required for Strategic Planning

To keep your business growing and outperforming competitors, you must develop strategic plans. These require bookkeeping. The information gathered through bookkeeping allows you to focus on achieving both short-term long-term goals. 

You’ll have the information you need to keep track of your financial status so you can make changes and redirect your goals when needed. 

12. Provides You with an Overview of the Business

When you focus on bookkeeping, you get a wide overview of your business. Instead of guesswork and mystery, you get objective data and clarity. You can harness your organization’s potential with greater confidence by consistently analyzing your financial reports to spot both problem and opportunity areas. 

Having access to an overview of your business can prove to be a game-changer. As a business owner, you need to know as much as you can about the course of your organization. This is only possible with bookkeeping.

13. Streamlined IRS Audit

If you want to navigate an IRS audit with relative ease, you’ll need to stay current on your bookkeeping. It is necessary to satisfy the requirements of the internal revenue service. 

Audits take time and focus, require a lot of historical financial data, and can easily wear you down if you’re not prepared. Keeping good records each day, having a defined bookkeeping plan, using helpful technology, and knowing exactly where everything is, makes an already stressful process much less so.  

14. Required By Law

Lastly, it is vital that you keep in mind that every business, regardless of its size, is required to maintain financial records. If you fail to obey the law, you could end up in hot water, incurring penalties, further audits, and even risk losing the required licenses for staying in business. 

In Closing

There’s just no way around it. The benefits of sound bookkeeping habits not only keep your business afloat, but save you from costly mistakes, keep you in good standing with customers and investors, and empower you to make better financial and creative decisions for the future of your organization. And don’t forget, you can partner with experienced bookkeepers along the way, so your bottom line and your plan never skip a beat. 

FAQ

How do you maintain bookkeeping records?

Use the Right Method for Bookkeeping: The first thing that you need to do is decide whether to use the accrual system of accounting or opt for a cash system. Although the accrual system can be time-consuming, it can help provide you with greater insight into your business.

Determine the Mode for Accounting: Next, ‌decide if you should keep your books maintained online or offline and whether you should outsource the maintenance of your books to a bookkeeping service provider or hire someone to do the work for you in-house.

Create a Separate Bank Account: It is important that you avoid undertaking business activities using your personal bank account, as it would only lead to confusion and poor money management. Therefore, you must create a separate bank account instead.

Why is bookkeeping important for a small business?

Bookkeeping is important for a small business as it allows you to organize and analyze financial information for drawing accurate conclusions, managing finances and investments, developing new products and services, and compensating team members and partners properly. 

What are the benefits of bookkeeping?

The following are just some of the benefits of bookkeeping:

Prepares you for audits

Helps you avoid fees and penalties

Enables you to compensate employees and partners accurately 

Helps you attract and keep quality talent

Gives you the information you need to make more focused, strategic decisions

Gives you a clear and accurate view of your organization’s ongoing performance

Affords you both a micro and macro view of your company

Gives you the info you need to invest more wisely

Helps you spot problem areas so you can redirect your focus and resources

Allows you to control your business instead of your business controlling you