Why Is Bookkeeping So Important in Your Business?

When becoming a business owner, many different areas will need to be focused on. The financial side is one of them, and an important one at that!

Bookkeeping tracks and records your business’s financial transactions and is recorded based on your company’s accounting principles and documentation. Some of this documentation will consist of receipts, invoices, bills, and even purchase orders. Many will record transactions using an Excel Spreadsheet, by hand in a journal, or by bookkeeping software.

Today, it is hard to show the financial history from Excel or a handwritten journal because it does not generate the following reports: profit and loss, balance sheet, or cash flow statement. These reports are needed when pursuing a lender to request a business loan or to prepare these for the lender each time they are due at their request from an existing loan. Bookkeeping software keeps track of both historical and present-day transactions while pulling forward the reports needed to monitor the business’s financial capabilities and journey toward deserved success.

Keep in mind that bookkeeping is not the same as accounting. Accounting is considered the umbrella for the processes related to the business, while bookkeeping is an integral part of the process. Bookkeeping is more of the administrative side needed for accounting to review and audit financial statements, perform audits, compile and file tax returns, and analyze financial statements.

Remember to keep all your personal and business transactions separate from each other. This will help minimize the triggering of an IRS audit and give you a much clearer picture of your finances.

A business owner might outsource their bookkeeping and accounting at first to focus on building the brand and the business. After small steps in your business are gained, work towards familiarizing yourself and learning the bookkeeping side of things if time allows. This will save both time and money for you as a business owner and allow the accounting side to focus more on the heavier lifting, the taxes!