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30-Oct-2020 By - team

Should you pay more attention to your bookkeeping?

Bookkeeping is important for helping you maintain accurate financial records. Yet still, many businesses fail to implement this integral process. Besides the fact you are required under law to maintain accurate books and records, doing so will save you frustration later on.

In fact, “poor accounting” is one of the top reasons businesses fail. Without bookkeeping or accounting, you are blindly driving your business.

As a business owner, you should understand the financial position of your company, including its net income or loss.

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You need this information to help you, and the stakeholders of your company make informed decisions about day-to-day operations as well as business strategies.

Bookkeeping services, like EWM, enable business owners or managers to run a business effectively and efficiently by supplying the essential information to them.

While it’s true that bookkeeping helps businesses of any size, it’s often a neglected process, which harms those businesses.

Many businesses fail because of financial mismanagement as a result of not having books or accounting records on hand.

Bookkeeping is the first step in the accounting process and arguably the most important one. A bookkeeper will compile all financial data – from transactions to wages – and turn them into easy-to-read reports that are ready for future analysis.

There are multiple benefits to having a good bookkeeper, and with all the changes happening in the financial world, every business will want to have such a person on staff.

As the year comes to an end, many business owners may find themselves behind in their bookkeeping, or perhaps they haven’t even started at all. This blog is meant to communicate the importance of bookkeeping throughout the year, not just at the end of the year.

What is Bookkeeping?

Bookkeeping refers to the process of recording day-to-day transactions within a business. These transactions include purchases, sales, receipts, and payments. A bookkeeper fulfils the role of ensuring that all transactions are properly recorded, which is typically done by using computer programs like QuickBooks Online. They are also vital in supporting the business owner to help them make better decisions on a weekly or monthly basis.

Here are the reasons why bookkeeping is so important:

It helps you to budget.

One of the most obvious benefits that the bookkeeping process brings is that it helps business owners budget.

When a bookkeeper takes care of your income and expenses, these numbers stay organised, which makes it more comfortable to review your financial resources and the money going out of your business account.

As you probably already know, you need a budget plan to make the financial roadmap of your business clear. With adequately organised books and accounting records, you can come up with a budget that’ll help you plan for expenses in the future and identify resources that would help you cover those expenses.

It enables you to analyse and better manage your business finances better.

One of the essential things you can focus on as a business owner is the cash flow management of your company.

Delayed invoices (not following up on customer payments) and miscommunicating with the suppliers will crash you down.

If you want to make these things systematic, you need a bookkeeping system in place for up-to-date invoicing, follow-ups and providing suppliers with on-time payment.

It lets you know if your business needs financing.

Accounts payables are a part of any business, and it’s something that you have to take care of for your business to survive.

Accounts payables are money that you owe to third-parties and failing to settle them can lead you to severe consequences.

Effective bookkeeping can tell you if your business doesn’t have enough in the budget to pay these accounts on time, giving you the chance to look for other sources or take the financing option out as a temporary solution to the problem.

You should pay the accounts payables of your business without compromising your working capital and bookkeeping can help you do it effectively.

It makes tax preparation more comfortable.

You have to prepare and file a tax return for your business each year. It’s an obligation that most companies struggle with due to a lack of proper bookkeeping in place.

Sounds familiar? If it’s also something that you’ve been struggling with since day one, then it’s the perfect time to make the tax filing proc ess more efficient by having a reliable bookkeeping function within your business.

Bookkeeping isn’t only for your company. It can also help you with personal tax filing as a business owner. A large portion of your income comes from the operations of your business.

Thus, taking an accurate look at your income for a given period means understanding how much your business makes within that specific period.

Tax preparation becomes quicker and more comfortable with a bookkeeping system functioning in your company. All the necessary financial information will be ready and available on time.

So, instead of scrambling for invoices or receipts, you have all the financial information organised and stored in a single central system.

It allows you to pay employees accurately and on time.

If you want to facilitate employee payments better, a reliable bookkeeping system can help you out.

Bookkeeping takes care of record-keeping for employees, handles bank reconciliations and communicates with the payroll function.

It makes sure that your business doesn’t end up underpaying employees by determining the exact amount of money needed to cover their salary and when the payroll should reach the appropriate parties.

Without effective bookkeeping within your company, you’ll struggle to maintain an accurate payroll process, which will result in dissatisfaction among your team.

It helps your business stay organised

Proper organisation is crucial for any business to succeed. It helps a lot that you’re able to find relevant business information anytime when the need for it arises.

The financial records of your company will also be of great help to several parties, including the ATO, your customers, employees, lenders and investors.

Provide your organised financial records to these parties when requested to maintain a good relationship with them. In the case of the ATO, it means avoiding fees and penalties.

Detailed Recording

A thorough, dedicated bookkeeper will always keep detailed records up to date. This complete recording will not only assist you in supervising your business accounts. Still, it will also be of great assistance once you need your financial statements — or once your company is audited — as this process will be much faster and much cheaper.

Always Compliant with the Law

A good bookkeeper will always comply with the latest legal regulations and will make sure all your accounts and books are up to date with any recent legal changes. Because the bookkeeper holds himself or herself accountable for any work that they do, you can rely on them to clear any mistakes. This saves time and effort for the bookkeeper, which in turn saves money for the company.

It Is Easier to Plan

Once you have a detailed recording and a better overview of the company’s accounts, it is much easier to plan and predict the future. When you are confident in your data, you can solve issues quickly, and you can grab any opportunities that present themselves, without having to fear miscalculations in the accessible data. Thanks to the overview of profit and loss evolutions in the balance sheet, you will be able to know exactly what to do and how much time you have to do it.

Instant Reporting

Even though you will need to wait for the accountant or the auditor to finish their reports to conclude official financial statements, you will always have an updated balance sheet to inquire about the current state of the accounts. You will be able to present these data to any interested party, providing additional confidence both in your work as a manager and in the company’s health as a whole.

Better Relations with Banks and Investors

That confidence will improve business relations with your investors and shareholders. Additionally, banks will be more willing to provide you with more affordable loans once they can see how your company is thriving. Any time an investor is interested in the health of your company, you can show the current detailed sheets and prove that the company is making major success.

Better Tax Prediction

While the ATO will demand an official financial statement from your company for taxation, you will be able to predict the outcome more accurately if you have access to detailed balance sheets over time. With them, you can keep an eye out for trends in your company’s business and be more confident in the amount of taxes you will be expected to pay at the end of the fiscal year.

Faster Business Response Time

When you have real-time information about the state of your accounts, you will be able to react quickly to any changes that happen to the market or your business. You will know the extent of your resources and current expenses, providing you with accurate insight: is it the right time to act?

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Faster Financial Analysis

As bookkeeping tends to be less expensive than accounting, it’s helpful to know that by having detailed records you will shorten the length of time an accountant will spend on analysing your accounts and creating financial statements. This will not only diminish the cost of accounting but will also give you more time to act upon the information provided by the analysis and change any strategies you might have planned.

Financial reports such as the balance sheet, income statement and statement of cash flows are critical for ownership and executive leadership. The balance sheet illustrates assets, liabilities and capital structure, while the income statement details revenue, expenses and net income. The cash flow statement delineates operational, investing and financing cash inflows and outflows. All of this information comes from the general ledger system, which is updated by the bookkeeping process.

 

Accurate financial reports allow business owners to make strategic decisions in a confident manner, and they also help keep a business alive. If there isn’t enough money to make payroll or meet the obligations the business faces, business owners must know and take the appropriate steps to correct the situation. Without accurate reporting, a business can become off course and management won’t know until it’s too late. This is especially true when it comes to capital structure and cash flow. Too much debt and

Easier Audits

Producing financial statements is much easier and faster when you have a better data-recording model. You will have a much easier time conducting an audit than you would if your accounts are messy, disorganised or even slightly outdated. Any auditor you employ will need to access the detailed balance sheets and compare them with the statements to know exactly what was done. They can produce their report quickly, and any mistakes will float to the surface.

Planning Purposes

Bookkeeping presents the past financial performance of your company. To plan for the future, you have to have a good understanding of the past. Bookkeeping will give you a clear picture of what exactly works or doesn’t work.

Bookkeeping not only helps with planning for strategic purposes but also plays a major role in tax planning. It gives your CPA the necessary information to properly categorise revenues and expenses.

With bookkeeping, you and your CPA can structure certain expenses to be more favourable. For example, if you have regular meetings with your clients, you might decide to provide lunch during your meetings. This has favourable tax benefits for your business.

 

Easy Reporting to Investors

Investors want to know the financial performance of your business to be able to want to quantify the value of their investment. Financial statements do just that. The balance sheet, income statement, and cash flow statement all present the value of your business.

As stated previously, the product of bookkeeping is financial statements. Bookkeeping allows investors to have up-to-date and accessible information. Investors will be able to make better, well informed, decisions which is the ultimate purpose of bookkeeping.

Bookkeeping is not only for current investors but for future investors too. Prospective investors are more likely to invest in your business when you have organised financial information. Think about it, if you were an investor, would you invest in a company that didn’t have access and organised financial records?

Financial Management

Bookkeeping is important because it allows you to take control of your business’ finances. Bookkeeping paints a clear picture of how you spend money. You can see outstanding invoices owed by you or your customers. You will benefit from paying your bills on time and receiving payment for your products or services on time too. It’s this delicate balance of cash inflow and outflow that will keep your business going.

Peace of Mind

Disorganised books can weigh heavy on your mind as a business owner. With all of the other factors of running a business, your bookkeeping should not be keeping you up at night.

When your books are complete, you can rest easy knowing that your company’s financial information is review ready. Banks no longer have to give you anxiety. Instead, you’ll find your mind at ease, and more focused on other elements of your business.

Track Profit and Growth

Bookkeeping is important because it shows your business’ profitability. For example, the income statement is one of the financial statements that is prepared from your bookkeeping. On the income statement, you can see if your business is profitable or not. Without this information, it is impossible to know how well (or not so well) you’re doing.

Bookkeeping also helps with tracking growth. Over time, you will accumulate months and years of data. With this data, you can observe trends and gain a greater understanding of your business cycles and compare results across periods.

Payment of Employees

Bookkeeping also helps facilitate the payment of employees through accurate record-keeping, bank reconciliations and communication with the payroll function. Suppose there isn’t enough money to make payroll or pay the appropriate business entities. In that case, bookkeepers can assist management with determining how much money is needed, and when it needs to be sent to the appropriate parties. Without having an effective bookkeeping and payroll process in place, a business will fail to survive.

Bookkeeping is a critical process that can make or break a business, which is why it’s important to understand the accounting cycle, how financial consolidation works, and document retention standards. There is no reason to let a great concept fizzle or a fledgling business shut down because financial reporting and record-keeping aren’t sufficient.

Conclusion

The things discussed above should be enough to help you realise the importance of bookkeeping to your business.

Now that you know how essential it is to have an excellent bookkeeping process implemented in your company, the next step would be to find the best bookkeeping professional to help you. Hiring one saves you time, money, and headache.

To achieve all these, you should hire a qualified bookkeeper. Bookkeeping can spell the difference between success and failure and can also literally save thousands of dollars for your business.

There is not a single business person or company who wouldn’t benefit from having a detailed bookkeeper. And when you are hiring a bookkeeper online, you can have a much wider choice and be certain to find the best person for the job for the most competitive price. Because you’re picking from a larger pool, you’ll have more relevant, highly qualified professionals to choose from.

 

 

 

DISCLAIMER
THIS WEBSITE CONTAINS GENERAL ADVICE ONLY AND IS NOT PERSONAL FINANCIAL OR INVESTMENT ADVICE. ALSO, CHANGES IN LEGISLATION MAY OCCUR FREQUENTLY. WE RECOMMEND THAT OUR FORMAL ADVICE BE OBTAINED BEFORE ACTING ON THE BASIS OF THIS INFORMATION. INFORMATION CONTAINED HEREIN HAS BEEN SECURED FROM SOURCES EWM ACCOUNTANTS & BUSINESS ADVISORS BELIEVES ARE RELIABLE, BUT MAKE NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OF SUCH INFORMATION AND ACCEPT NO LIABILITY. WE SUGGEST THAT YOU CONSULT WITH A TAX ADVISOR, CPA, FINANCIAL ADVISOR, ATTORNEY, ACCOUNTANT, AND ANY OTHER PROFESSIONAL THAT CAN HELP YOU TO UNDERSTAND AND ASSESS THE RISKS ASSOCIATED WITH ANY INVESTMENT.

Guest post by : team Form -

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