Why bookkeeping is important
Organising your finances seem overwhelming but it is one of the most essential functions of any business, no matter how large or small. According to a report published by CPA Australia, the major factor behind failure of many businesses is bad management of their financial records. Here are some of the reasons why bookkeeping is important for the survival and growth of your business and why you should keep proper books:
- Monitor where your money is going: When you keep proper accounting records you know exactly where your money is going and how much you are spending in each area of your business. Not checking your expenses on regular basis can result in spending too much money in certain areas and not enough in others; and the end result being not having enough left over to cover those expenses that are vital to the success of your business.
- Borrowing funds to help with cashflow or operations: The key to any successful business is the ability to manage limited resources. There are going to be times that a small business may have to borrow money to help pay the bills, fund payroll, restock inventory or any other expense needed to keep the business running. Your financial records are one of the first things, a lender will request. These records are what can determine whether or not a bank or a financial institution will be willing to give you a loan or access to credit.
- Saving money at tax time: None of us get excited about paying taxes! Being able to minimize tax payable can only be achieved through keeping proper accounting records. One of the biggest disadvantages of not maintaining your books is the loss of tax deductible expenses. It is almost impossible to keep a mental note of everything you spent the year before. Hence, one of the smartest things you can do for yourself and for your business is to take advantage of all the deductions allowed by law. This is hard to do, if you do not have records to prove your claims. In addition to that, imagine how much money you can save, if you gave your accountant a clean set of books instead of the traditional ‘shoe-box’ type of record-keeping that was once so prevalent. They would then have to sift through a sea of transactions before they can even start preparing your tax return. Now you’ll be paying not only for tax preparation services but also for bookkeeping at a much higher rate!
- Manage the growth of your business: In order to grow your business, you have to plan for future sales as well as the future expenses associated with projected sales’ figures. To do this, you need proper reports to help guide your decisions. By keeping proper reports, you are better able to plan for the future growth of your business by determining where improvements need to be made in your current business model.
- Finding relevant information: At any point in time, you may need to lookup financial information quickly, such as your income for a particular month or income for the last quarter. By keeping accurate financial records, you’ll know exactly what you need to know at any given time. Good financial records will allow you to make changes to certain aspects of your business before it is too late. Finding out at tax time that your business suffers six consecutive months of losses is not the best way to run your business. Such an unexpected surprise can eventually hurt your business and can be avoided by maintaining proper books of accounts.
The natural inclination for many SMEs is to think short-term, but there’s a much larger picture to consider. Having the right resource with the relevant quality control measures in place will identify potential pitfalls and minimise the impact it may have on a business.
This is the value that we provide at Proactive Business Bookkeeping. By partnering with us, you’ll have access to qualified accountants who manage our bookkeeping team, so that you can have the peace of mind that the quality we deliver will be of the highest standard, freeing up your time to focus on what matters most to you.