Why is it crucial for small business owners to have reliable and current books to make informed decisions?

Many people suggest business owners should don’t waste their time and energy on bookkeeping and accounting but they don’t know the importance of it. Bookkeeping and accounting are the lifeblood of any business. Without it, any business can’t exist in this competitive world.

Bookkeeping and accounting are not only beneficial for internal purposes but also for external stakeholders of businesses. It’s important to convince investors to invest, to convince bankers for loans, and to convince suppliers to provide materials.

WHAT IS BOOKKEEPING AND ACCOUNTING?

Recording and storing every transaction of business and also maintaining receivables and payables of the businesses are included in accounting and bookkeeping.

Generating different types of reports from it for decision making, getting loan and investments, tracking sales and purchases, partnership with other businesses for purchasing and selling, etc. are also consists of accounting and bookkeeping.

ASPECTS OF BOOKKEEPING

accounting and bookkeeping transactions with financial matters, it is not a small area but it comprises every activity of the businesses, because mostly in businesses every activity relates to finance directly or indirectly. The main tasks of accounting and bookkeeping are under:

•           Maintaining Ledgers

•           Handling accounts payable and receivables

•           Payroll services

•           Inventory Services

•           Invoice Processing

•           Investment or Business advice

•           Prepare for tax returns

DIFFERENCE BETWEEN BOOKKEEPING AND ACCOUNTING

Bookkeeping deals with recording and storing financial data but accounting deals with reporting and sorting these data. Therefore, it’s related to each other or it’s can’t be complete without each other’s existence.

WHY ARE BOOKKEEPING AND ACCOUNTING CRUCIAL FOR BUSINESSES?

As already mentioned Bookkeeping is the lifeblood of businesses, it’s important to know the financial health of businesses and to improve it. Below are some reasons why reliable and current bookkeeping is crucial for business owners to make informed decisions:

1. MAKE ACCURATE BUDGETING POSSIBLE

Accounting and bookkeeping help make accurate budgets of all types.  You can make an accurate expense budget for all heads due to having accurate data. If you set growth of your income then you can set growth in the expenses readily.

Reliable and current bookkeeping also provides control over the budget. Business owners can decide whether the created budget is accurate or required to change it.

2. AIDS IN SETTING AND MONITORING BUSINESS GOALS

Every business has goals to achieve in a specified time. Business owners can set goals with the previous data and also monitor goals with new and updated data. 

 For example, a business owner sets a goal of selling 1000 items in a month, when the bookkeeper records and updates sales regularly, a business owner can decide at any point if the speed of sales and marketing team is good or required to be enhanced or reduced. Business owners can change or update their sales goals or other goals with the aid of bookkeeping at any required time.

3. MAINTAINS ORGANIZED RECORDS

Books of accounts maintain organized records of the finances of the businesses. Experts taught all the methods of recording accurately. We can learn it anywhere due to technology easily.

Methods of recording, storing, analyzing, reporting, and accounting statements are already provided and decided by the experts. Business owners have to learn and implement it in their business to take benefits from it. 

4. MONITORING AND CONTROLLING OF INCOME AND EXPENSES

Business owners can control and monitor expenses with Reliable and updated bookkeeping. Every entry of expenses will show the balance of expenses and how much expended in the month, quarter, and year. If you expended more than the budget you can reduce it in the future or review the budget accordingly.

Business owners can also transfer budget amounts from one head to another, because sometimes one head is not required to expend but others require more to expend.

Business owners also can track, monitor and control their businesses’ income easily with updated and accurate bookkeeping and accounting. If your business fails to achieve the budgeted income then how to increase it, will be possible due to bookkeeping and accounting.

5. TRACKING BUSINESS GROWTH

Tracking business growth is easy with the help of bookkeeping and accounting not only for business owners but the entire stack holders. They can generate accounting statements to know the business growth for future compliances.

If the businesses are not growing then analyzing and finding the reasons and facts are also easy with the bookkeeping and accounting. If the businesses are growing well then finding the facts of growth is also doable due to the accounting and bookkeeping.

6. BETTER CASH FLOW MANAGEMENT

To know the cash flow of the business for all the stakeholders is necessary. They have to decide on future purchasing and expenditures with the help of cash flow. They also decide on other options like taking loans, getting investments, providing discounts and concessions to their customers, etc with the help of cash flow.

Better cash flow is possible due to only reliable bookkeeping and accounting.

7. ACCURATE FINANCIAL STATEMENTS

Business owners and other stakeholders also generate accurate financial statements if the books are updated and reliable. If the books didn’t update financial statements will be inaccurate.

Financial statements are necessary for all the stakeholders of the business. Investors, debt providers, partners, suppliers, etc. analyze and scrutinize the financial statements of the business before any activity and agreements. They all will trust the accurate financial statement otherwise they couldn’t participate with businesses in the future, and without other partners and stakeholders, a business can’t carry on.

8. STRESS-FREE TAX

Due to the reliable and updated accounting, business owners remain stress-free for taxes. Every entry automatically calculates the taxes due to technologies. Business owners or employees only have to deposit tax according to the accounting software and show it to the tax authorities for further compliance.

Tax authorities of any country or state also trust reliable accounting and bookkeeping, because they know the role of technology. Much software can be linked with the tax authorities systems, which save the time and energy of businesses. Tax authorities can audit businesses’ taxes from their offices rather than visiting the business sites.

 Therefore reliable and updated books keep the owners and employees stress-free from taxes.

9. ENSURES COMPLIANCE WITH GOVERNMENT REGULATIONS

The government always emphasis and ensures to carry on businesses with their regulations and it is possible due to only updated and reliable books.

Business owners can show the financial reports and returns to government officials whenever they are required to ensure them that all the activities of the business are according to their regulations.

Many regulations like minimum wages for employees, expansion research and development, and training of employees, protection of the environment, are necessary for almost all over the planet for industries.

10. BORROWING MONEY OR GETTING INVESTMENT

All the investors and loaners analyze entire financial statements before providing loans or investments. You can provide these accurate financial statements for any period that they require immediately if you keep your books updated and reliable.

You can also like all the vouchers and supporting documents of the entries with the help of reliable and accurate financial systems. With these analyses and scrutiny, they decide whether the business can repay their money, how much money should be invested, for how much period, and how much they will receive as ROI.

11. CONTROL & ACCOUNTABILITY

Reliable and updated accounting or books make it easy to control and accountability of business activities for owners and other stakeholders. They all can verify, link, and examine any entry or activity of the business with the help of reliable ledgers.

However, If the accounting record can’t be reliable and updated the employee or other stockholders can fraud, deceit, and misuse of business money and assets easily, but a reliable system will eliminate them from doing so.

Business owners or other stakeholders can easily recognize the business target and can change business targets easily according to the situation with the help of reliable and updated accounting systems.

12. CREATING FORECASTS

Forecasting is necessary for every business owner to budgeting, planning, get loans and investments, making strategies, investing in ads and marketing, hiring, procurements, and partnerships.

Every future activity requires data in different formats, and a reliable and updated accounting will be provided easily. Business owners can forecast accurately to save money and to grow business more rapidly.

Forecasting for different types of activities of the business is a complicated task for the business owners and other stakeholders, which can be a little bit easy due to reliable books. Therefore, make ensure the books of your or your partners are updated and reliable.

13. EASIER AND ACCURATE DECISION MAKING

Like forecasting, decision-making also requires reliable and updated data about the business. As reliable data is received as accurate decisions will be made by the stakeholders about the future of the businesses.

Therefore, reliable and updated accounts are necessary for decision-making. If the accounting date isn’t reliable and updated, the decision will be wide off the mark, which also hurt the business accordingly.

14. IDENTIFYING FINANCIAL TRENDS

But If your business is selling more than one product, which product is more required in public and which region, will be identified by reliable and current accounts data? Business owners can decide on the production and supply of products accurately.

If the books are not reliable and updated then imagine how business owners can identify the trends. Which products are selling more than expected, why and in which region?

Whether its productions should be enhanced or not. If the increase in production is necessary then how much material, loan, and employees are required? These all data will be received by reliable and updated accounting.

15. OFFERS LEARNING OPPORTUNITIES

Business owners can learn from accounting, which they can’t learn from any other place. Because learning practical and theory is necessary, and these both will be experienced in a business.

You can see all the successful business owners are experts in accounting, investing, finance and economics than the students and professionals in these fields, which they didn’t learn from any universities, but from experiences and curiosity.

16. PEACE OF MIND

Reliable and updated books keep their entire stakeholders in peace and also in confidence. They don’t feel stress and doubt about fraud, inaccurate statements, etc.

Business owners can argue, deal, and partner with anyone confidently due to their reliable accounts.

CONCLUSION

These all are the reasons, why business owners must have reliable and current books to make informed decisions. These entire are all necessary and important for the businesses’ survival and growth. Implement a reliable accounting system in your business and keep it updated for the growth of yourself and your businesses.