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What is Bookkeeping?

Bookkeeping refers to the organizing and storage of accounting and financial documents such as ledgers, journals, financial statements, income tax records, and more. In simple terms, recording of financial transactions and related documents on a daily basis.

Bookkeeping allows a business owner to have a greater understanding of how much progress has been made. This can provide a greater understanding of the areas within the business which make a profit and where costs might be trimmed. This kind of financial analysis can help you to avoid problems in the future.

Bookkeeping and Importance to Small Business

• Profitability and Growth - Generally small business owners do not maintain bookkeeping properly and assume that they are making profits in the business. But, they miss-out lot of things and end up in losses. Accurate bookkeeping allows you to see whether or not your business is actually making a profit. It is surprising how often business owners fail to keep track of this but it is obviously extremely important.
• Cash Flow - Keeping track of cash flow is critically important for any business and it’s only possible if you have accurate financial records. Many seemingly profitable and growing businesses have failed because they have suddenly been hit by an unexpected cash-flow crisis.
• Expenses - Claim specific expenses which have been wholly and exclusively incurred as part of their business. Expenses should always be paid for directly from the business bank account and should ideally be submitted on a monthly or quarterly basis. This ensures that the person doing the bookkeeping has an understanding of outgoings and can monitor them for tax and accounting purposes.
• Record Keeping Fulfilling Tax Obligations - Businesses can have information and documents needed to meet their tax obligations annually thanks to proper bookkeeping. When tax time approaches, there is no need to rush looking for bills or try to remember various expenses as you have them in the records.
• Planning for The Business Becomes Easier - With proper bookkeeping, you can know how much progress the business has made over time. This goes a long way in making it much easier to plan for the future of the business. You can compare previous years to the current year of the business, know the areas of the business that are making profit and decide on areas to cut back on as well as help you make informed decisions especially when it comes to the finances of the business.
• Helps in Management and Financial Analysis - It is important to focus on managing the cash flow of the business. In a situation where invoices are delayed, customers can delay payments because if there is no follow-up then the business could fail. With bookkeeping, all these can be taken care of as it helps to create an organized system that can easily be followed and ensures that the business runs smoothly.