Why Bookkeeping Is Important For Small Businesses?


If you are planning to start a new business or have just opened up a small business, there is a great possibility that you have not yet started maintaining account books. Bookkeeping is the simplest form of recording everything that is coming in and out of the business. When you start a business, there are many aspects you will not be necessarily be aware of or that you need to pay close attention to. Often, small businesses don’t pay much professional attention to accounting and bookkeeping.

How you choose to do bookkeeping is really up to you. If you had lots of paper receipts and you are running a large business, you probably don’t want to do the bookkeeping yourself and would want to outsource it to expert bookkeeping or accounting services.

For many new and small businesses, it is very tempting to do the books yourself to keep costs and expenses down. Perhaps you don’t feel is cost effective outsourcing it to a bookkeeping service as a small business.

Whether you do it yourself or outsource to third party service providers, bookkeeping is undoubtedly the most important function of any business and particularly for smaller businesses. Below are some of the reasons why is it important for small companies:

It measures success

It will give you a specific number to how much profit you made over a specific period of time. In the initial phase of any business, accumulating profit is crucial to making the business self-sustainable. Only if you are maintaining your books of accounts accurately will you be able to assess the profitability and future prospects of your business.

It measures the assets & liabilities and owner’s equity

We always want to know how many assets we’ve got and what are our liabilities. Accurate books of accounts give a true picture of financial position and performance of any company.

You have control over the cash flow

To run a business successfully, it is imperative to keep track of your cash flow to manage your payment to suppliers, receipts from debtors, free cash available to purchase inventory, make payment to our lenders and so forth.

You would want to know in detail where money has come from and where is it going to make decisions for the future of your business such as:

• whether we can buy a piece of capital equipment in the future;
• whether we can reduce our costs in the future;
• whether we can increase our sales in the future;
• whether we can expand in the future etc.

It ensures accountability for owners

All the managing directors or managing partners of any business are accountable to other shareholders. Good accounting and bookkeeping records illustrate the financial position and performance of the company to interested parties and others who constantly assess the financial statuses of companies.

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