The Importance of Small Business Bookkeeping

importance of small business bookkeeping smb accounting startup financial management

Running a small business is full of exhilarating moments from your first sale to your new storefront. But it also full of a lot of mundane and technical tasks. 

It can be tempting to ignore the less interesting parts of the job in favor of the more exciting. But this can lead to big problems down the road. 

Bookkeeping and accounting can seem like unnecessary tasks but they critical. 

Let's take a more in-depth look into the importance of small business bookkeeping and how your organization can benefit. 

What is Bookkeeping?

Bookkeeping in very simple terms is the systematic record keeping of all financial transactions in a business. 

A business needs to keep track of all the money that comes in and goes out of the accounts. This includes who gave or received the money, what it was for, and how much was interchanged. 

These records can be kept manually or digitally, though 67% of accountants now prefer to use a cloud-based program. 

The key to good, productive bookkeeping is to keep it as up to date as possible. This record allows business leaders to see the current health of their finances. 

Bookkeeping often has a bad reputation for being boring and tedious but it is actually very essential to a smooth-running business. 

What is the Importance of Small Business Bookkeeping?

There are hardly any business owners who wonder why accounting is important but that is often a question about bookkeeping. 

Bookkeeping is an essential step to proper accounting practices. Without the daily records of the financial transactions, a business cannot know where they stand at any moment. 

The importance of bookkeeping is often seen when an issue comes up. If the bookkeeping has been done correctly, these issues can be resolved quickly. 

There are a few key ways that bookkeeping helps businesses check them out below.

Be Prepared for Tax Season

Taxes may be the most dreaded part of owning your own small business. There are so many technical details that need to be handled. You want to do it right to get the most money back and also to avoid any penalties. 

Correct bookkeeping can make filing taxes so much easier. 

Instead of scrambling around to find all of the correct paperwork and numbers, it will all already be collected and organized. 

If you use an outside accountant for filing taxes, proper bookkeeping can save you money as it will likely take less time to find what they need. 

This type of organization also comes very in handy if a tax audit comes up in the future. All of those bookkeeping records can be used to verify transactions or anything else in question. 

Keep a Budget and System Organization

One of the bigger answers to the question 'why is bookkeeping important?' is it helps keep the whole business more organized. 

The ultimate goal of many businesses is obviously to be profitable. It is very difficult to be profitable when money is just moving around everywhere and there is no set budget. 

Keeping a budget is much easier when there is a clear system for recording what is coming in and what is coming out. 

Bookkeeping especially helps the budgeting of a small business when there is more than one party involved.

When there is a record of spending each entity can keep track of the other. Adjustments can be made quicker if there are problems because they can be seen through the bookkeeping. 

Make More Informed Decisions 

Another advantage of having a bookkeeping system is that it is easier to see the big picture view of the business' financial standing and future. 

A big part of keeping a business on track is the consistent analysis to see where things can grow, where the problems are, and what needs to be changed. All of these things are easier to figure out when you can see it the whole history all at once. 

Investing is another key aspect of growing a business. Correct bookkeeping can help the business owner to know what kinds of investments they can make. 

On the other side of that, correct bookkeeping can help potential investors decide if it is right for them to get into as well. 

Who Needs a Bookkeeper?

So the benefits of bookkeeping are very clear and important to the smooth running of a business. But who actually needs a bookkeeper?

The short answer is every small business should have someone who is dedicated to keeping these records. It is critical to the health of the business.  

Now the difference between businesses will be how the business goes about having that dedicated bookkeeper. 

The business may decide to have an in-house bookkeeper who is responsible for all of those tasks. There is no set requirement for becoming a bookkeeper, so anyone can learn what it takes to fulfill this role. 

Another option would be to hire out the job to a bookkeeping or accounting agency. This is a more common choice for businesses with trickier bookkeeping tasks, like nonprofit bookkeeping. 

However the business decides to do their bookkeeping, it is critical to have someone responsible for keeping the organization going. 

How Will I Benefit from Having a Bookkeeper?

Starting and keeping a small business is hard work and many do not make it past five years. This is often due to money mismanagement. 

The importance of small business bookkeeping can not be understated; it is a critical aspect of a successful company. When done correctly, it keeps everyone on the same page. 

A continual record-keeping system has many benefits to the overall health of the company.

People are more likely to follow the set budget when they know that transactions will be tracked, recorded, and analyzed. Big investment or other important decisions can be made with more confidence. And problems with money can be found and resolved quickly. 

Bookkeeping can change a business for the better. Check out our website for more ways to improve your business finances! Visit the Finance section of the Bootstrap Business Blog for more information on the importance of small business bookkeeping, accounting, and financial management.

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