Importance Of Bookkeeping And Accounting For Your Business 25 Aug 2021

Importance of bookkeeping for your business

Importance Of Bookkeeping And Accounting For Your Business is documenting every information about the financial transactions and money in the organization. Every business event that has a monetary impact is documented. It could be purchasing goods from a vendor or selling products to the customers.

The financial documentation cannot be done by everybody in the team and it requires a specialist to chronicle them. And here is where a bookkeeper and an accountant will fit the job description. Maintaining a journal of the monetary transactions will help the organization understand their expenditure and calculate their ROI. The right bookkeeping will help accountants to prepare accurate financial reports which can be leveraged by the executives to decide the financial future of a company. So, a lot is riding on perfect bookkeeping and accounting.

What is bookkeeping?

Bookkeeping refers to monitoring and recording a company’s daily financial transactions. Bookkeepers are financial experts at a basic level who will handle the monetary data. Without bookkeeping and bookkeeper, an organization will not be able to assess their current financial position and will be oblivious to make any financial decision.

Clear bookkeeping will give a definitive evaluation of the company’s performance. It also furnishes basic information to make strategic decisions and enables the decision-maker to set a benchmark for revenue and income goals. By and large, when a business is up and running, maintaining accurate and proper financial records is crucial.

The following are some classic bookkeeping tasks:

  • Documenting financial transactions
  • Updating debits and credits
  • Generating invoices
  • Handling payroll
  • Managing and balancing ledgers, accounts, and subsidiaries

Importance of bookkeeping for your business

The importance of outsourcing bookkeeping, especially for small businesses will help with a lot of things.

In addition to the major benefits of outsourcing your bookkeeping like,

  • Saving time and allocating your resources to do more productive tasks in their skillset,
  • Saving administration and operational costs
  • Saving training time
  • Avoiding errors

A few of the other key benefits with bookkeeping are:

● Improved financial analysis and management

Inefficient account management and cash flow can tamper you especially at the last moment, and upset your decision-making process. Proper bookkeeping will make sure that everything is organized and up-to-date including invoicing, account receivables, account payable, follow-ups, etc.

● Tax compliance

In simple words, if you manage your books religiously, you can be informed about the financial transactions and their documents which will help you be compliant with your tax obligations. Bookkeeping eliminates the need for you to collect every bill and expense report during the tax season as you may have already recorded them on a daily basis. Bookkeeping keeps your balance sheet organized, saving you more time in finance management and during tax season.

● Robust business planning

With a strict bookkeeping routine, you will also inculcate robust business planning habits. Bookkeeping gives you the latest information about where you stand financially. This practice enables you to make quicker decisions on the go, and eventually, you will be able to understand if you are on the right track or you need to change tracks. Ideally, bookkeeping helps you with good decision-making substantiated with details.

● Reporting to investors is straightforward

Bookkeeping is a direct record of your expenditure and daily financial transactions. As you save the details every day, you can retrieve them at any point in time when it is your investors calling you. You can customize the data into graphs and reports and present your financial status to the investors.

What is accounting?

Accounting refers to summarizing, interpreting, and communicating financial transactions based on the information given by the bookkeeper. An accountant studies the financial data document by the bookkeeper and provides important business insights and financial counsel to the business owners.

Accountants usually look at the bigger picture to bring the key aspects of the business’s finance together. It would give you an idea of where your company’s finances stand, what they mean, what you can and must do about them, and where you can expect to take your business in the future.

The typical accounting tasks done by an accountant include:

  • Verifying and analyzing data
  • Modifying entries to adjust in the reports
  • Creating reports, performing audits, and generating financial reporting records like income statements, balance sheets, and tax returns
  • Providing business insights on financial forecasts, growth opportunities, and business trends
  • Helping the executives make informed decisions
  • Assisting business owners to comprehend the impact of their financial decisions

Importance of accounting for your business

The benefits of the following pointers list the importance of accounting in business:

● Track the cash flow

The significance of accounting becomes evident when you see the results of how it can help keep your accounts up-to-date to monitor your cash requirements, working capital, etc. A systematic accounting procedure will allow you to keep your financial standards at bay and monitor your cash flow.

● Monitor timely business performance

A proper record of finances for every fiscal year helps you understand the company’s financial strengths and compare the performance and results with its preceding years. The accounting will give you an idea of how poor or great your business is performing financially, how are your expenses, gross margin, debt, income, etc. The data can be leveraged to allocate budgets and plan on new business ideas.

●      Streamline futuristic business goals

Aligning your business goals with a defined budget is very crucial to run an organization. The significance of accounting for a business is incomparable. The cumulative accounting data will assist you to prepare budgets for the succeeding years keeping your specific business goal. Furthermore, it will be simpler to analyze various financial charts and reports when you have all the data handy to run your daily business operations.

● Accelerates the decision-making

Clear data and a comprehensible report from bookkeeping and accounting will help you make informed decisions to run your business smoothly. Understanding your financial position will also help you to create policies favoring your employees and thus, improve the overall efficiency of your organization.

● Easier auditing

With an expert accountant, you will be able to keep the financial fundamentals of your business cogent. Daily information recorded religiously, and proper maintenance of the balance sheets will relieve you a huge chunk of stress during the auditing seasons.

Differences between bookkeeping for your business

Bookkeeping and accounting are different from each other. It is a thin line between the two and has subtle differences.

Bookkeeping is more like a clerical job that entails identifying and recording day-to-day financial transactions. A bookkeeper creates ledger accounts and trial balances. It is essential for a bookkeeper to understand the basic concepts of accounting to perform daily tasks.

Accounting, a successor to bookkeeping, entails preparing the financial statements, tax statements, and tax returns, filing taxes, performing audits, etc. The financial reports will give insights worthy of decision-making for the business. Accounting is solely relying on the data provided by the bookkeeper to comprehend the financial position and financial health of the organization.

Long story short: Bookkeepers manage the everyday tasks of recording financial transactions while accountants provide insights and analysis based on that information.

How can Velan help to Importance of bookkeeping for your business?

As you can tell, bookkeeping and accounting are two crucial aspects of a business. Sometimes, businesses are not able to afford the hefty salary packages that come along with bookkeeping and accounting services. Besides, a business does not require an accountant every day. And having them also requires a proper team setup, administration efforts, and other perks that match with a regular employee. And here’s where Velan could help you.

Velan has been the most reliable outsourcing partner for more than a decade. We have a suite of finance and accounting services that augment businesses across various industries like Order to Cash, Procure to Pay, Record to Report, General Accounting, and Financial Planning and Analysis. The bookkeeping and accounting services of Velan help businesses with better cash flow management and ultimately, impact the overall growth of your business.

Pramod

Manager

About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimisation resulting in greater operational efficiencies. He can be reached at pramod.fs@velaninfo.com

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