Growing a small business is hard work and can sometimes lead to failure. In fact, 60% of businesses will fail in the first three years, and of those who fail, only 50% are profitable.
According to a study by the University of Technology, Sydney, financial mismanagement and poor record-keeping are the most cited reasons for business failure. These reasons can easily be avoided through good bookkeeping.
Bookkeeping is the system of tracking all financial activities in your business. It is crucial to a company’s growth and long-term success. Here are five reasons why bookkeeping is important for your business:
Keep accurate and organised financial records
As a small business owner, keeping your records and financial transactions in check is important. Bookkeeping allows you to clearly and easily understand where your cash is coming from and going. This helps you keep track of expenses, discrepancies and possible opportunities for growth.
Bookkeeping also helps you get on top of deadlines so that you don’t make mistakes and encounter penalties.
Prepares you for Tax
All businesses have tax obligations they need to file. Having a good business bookkeeping process in place makes it easier for you to prepare all the information needed to prepare your tax returns.
Pro tip: using good accounting software can make organising your financial data easier and more accessible. Great examples of this software are Xero & MYOB. You won’t need to go through your filing cabinets, invoices and bank statements as these are all organised in one location.
Makes budgeting easier
Small business bookkeeping is a vital tool for accurate financial planning and budgeting. It provides you with an overview of the business’s past income and expenses. This past financial data can then be used to plan the future of your business
Regularly comparing your budget estimates and actual business performance also helps you identify any cash flow issues or cost reduction opportunities in the future. Without basic bookkeeping, this task can be difficult and time-consuming.
Manage Cash Flow Better
Business owners need to ensure that they have sufficient funds to operate their businesses. Many businesses fail because they stumble upon cash flow issues. In fact, 82% of small businesses fail due to cash flow problems.
Having accurate records can help you avoid cash flow issues and keep track of your accounts payable and receivable.
Make informed financial decisions
Growing your business requires a good understanding of your business’s finances and performance. As your business grows, you need to make big decisions like opening a new location or hiring more people. Accurate bookkeeping can help you make more informed business decisions based on updated financial information.
Many businesses use an accounting firm like Craig Allen & Associates for bookkeeping services. This provides them with financial expertise from skilled accountants and, in turn, more time to focus on their business’s core activities.
Looking for bookkeeping services for small businesses?
raig Allen & Associates is a CPA Practice and are experts in helping small businesses with their business accounting and bookkeeping needs. Schedule a free, no-obligation consultation now by contacting our team at 039 558 7316 or emailing us at craig@craigallen.com.au.
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