Reasons why you should focus on keeping your bookkeeping effective
We all know that for
the successful running of a business, keeping records of all the daily
transactions is really important. But still, there are many businesses that do
not truly understand the value of bookkeeping. Sometimes, they consider it as
too much work and ask, why they should focus on bookkeeping? Well, to answer
this question once and for all, we would say that bookkeeping is very important
and necessary for every business irrespective of their size or industry to
achieve transparency in the business results. Imagine running your business for
a year and at the year-end realizing your accounts depict results that are far
from reality. That is why you should focus on timely and accurate bookkeeping.
Want to know how exactly effective bookkeeping helps business? Let's see!
For everyone’s sake,
before moving to the importance of bookkeeping, let us reiterate what
bookkeeping means? Bookkeeping in layman terms is the record of all the
financial transactions that take place in the business regularly. A transaction
may include purchase, sale, receipts, payments, etc. There are different
softwares used by businesses for bookkeeping. Since efficient bookkeeping
updates the business owners about the accurate financial health of a business,
it would not be incorrect if we call it the essence of a successful business.
But let us find answers to our main question now “Why should you focus on
keeping your bookkeeping effective?”
: Importance of Effective Bookkeeping
1. Helps you stay law compliant:-
Bookkeeping is required by law because every business, no matter the size, earns some income, on which they would need to pay tax and lodge the tax return. For accurate lodgement of tax returns, it is important that business transactions are recorded accurately on a daily basis and no deviations are made. Therefore, you should involve some good professionals for business bookkeeping so that you remain ATO compliant and avoid any tax notices.
2. Enables you to make important decisions:-
When your business records are accurately recorded, you would be in a better position to gain a fair idea as to where your business is headed. You will know how much the expenses and revenues are during the period. Such accurate records will also help you understand which area of the business is underperforming and you can devise strategies to revive such a business area. All in all, efficient bookkeeping helps business owners and companies to make strategic decisions, set out objectives for the future, and create plans for achieving those objectives.
3. Ease in tracking the profit and growth:-
When you have accurate accounting records in front of you, it becomes easier to track the profitability and growth of your business. Bookkeeping, when done effectively, helps you in analyzing the sources of revenues and expenses. This further helps you in understanding how profitable your business is based on which you can take steps to increase the sources of revenues and optimize the cost levels. Basically, you are able to create a growth path for your business when your bookkeeping processes are appropriate.
4. Lets you detect and prevent financial frauds
Bookkeeping helps in
identifying financial fraud because accurate bookkeeping lets the accountant
spot any error or abnormal transaction easily. Additionally, bookkeepers can
also spot errors or fraud during the reconciliation process; it helps them in
classifying transactions as legitimate transactions and abnormal ones. So, you
must take steps to make your bookkeeping processes efficient, after all, your
finances are at stake!
5. Preparation of financial statements
Bookkeeping is an
initial step towards the preparation of the financial statements of the
business. Profit and loss statements are prepared on the basis of the
bookkeeping. With the help of efficient bookkeeping, accountants can categorize
the transactions accurately which makes it easier in the generation of the
financial statements that represent the true and fair view of the financial
health of your business.
We are sure that by
now even you would also agree that bookkeeping is the backbone or foundation of
a successful business. Running a business without efficient bookkeeping is like
walking with closed eyes and expecting to reach the correct destination without
falling or even staggering.
Comments