To start a business is one thing, to keep due financial records to run the business is another. As food is important to man to provide strength, so is bookkeeping to entrepreneurs. There is a need for proper documentation of all your business financial activities as an entrepreneur to run a successful business. Without bookkeeping as an entrepreneur, you can be likened to a blind man crossing the road without a guide.
Bookkeeping refers to keeping financial information accurately and fashionably. Bookkeeping is the process of compiling data and perhaps the preparation of financial statements. It is an up to date record of your financial transactions.
BENEFITS OF BOOKKEEPING TO YOUR BUSINESS
Bookkeeping is important for proper documentation and reference of your financial records. You’re an entrepreneur and still doubting the potency of bookkeeping. Below are the breathtaking benefits of bookkeeping;
Bookkeeping helps you budget
When incomes are properly organized, it makes it easier to review financial resources and expenses over a period of time. A budget creates a financial roadmap for your business. With a budget, you can plan your future expenses and the anticipated resources to cover those expenses.
In most cases, your business has to file a tax return every year. And every year, millions of business owners are scrambling through their desk to find missing paperwork. The tax filing process can be made more efficient in your company. As a business owner, a large part of your income comes from your business. To know your income, you should know your business earnings first. With bookkeeping, you can have a financial information ready at due time for tax return. You wouldn’t have to search for receipts to use because your financial statements will be ready.
Bookkeeping is important because it helps with business analysis. It is a tool used by management to analyze business performance. The product of bookkeeping is financial statements. Financial statements should be regularly generated and used for analysis. During analysis, you can track your cash inflows and outflows. It gives you information on which business contacts are working and not working.
Investors want to know the financial performance of your business to be able to quantify the value of their investment. Your financial statement will help out with this; balance sheet, income statement, cash flow statement help to present the value of your business. Bookkeeping allows for investors to have an up-to-date and accessible information. It is not just for current investors but in the expectation of future investors. Think about it, if you were to be an investor, would you invest I a company with no organized financial records.
Track profit and growth
It is beneficial to your business because it shows your profitability. Accessing the income statement in bookkeeping, you can see if you have running at a loss or with profit. It also helps with tracking growth. Over time, you will accumulate months and years of your business data. With this data, you can observe trends and gain a greater understanding of your business cycles and compare results across periods.
BASIC STEPS IN BOOKKEEPING
Bookkeeping can be made simpler if you follow a logical set of steps. Here are some fundamental concepts to keep things in order when handling the books for a business.
Set apart your business and personal expenses
To monitor your business finances effectively, it’s important to set a line for them from your personal finances. Plus, it may be difficult to incur your bank statements if you don’t separate your business expenses from personal expenses.
Choose a bookkeeping system
There are two major bookkeeping methods: single-entry, and double-entry. You can make use of either of the system as neither is better or more adequate for your business. All you have to do is to pick a system that is right for your business and make it a habit. Single-entry is a simple system that might work for you if your bookkeeping is very straightforward. Entries are recorded one time, as either an expense or income. Assets and liabilities are tracked separately. Double-entry is more complex, but also more robust. First, all transactions are entered into a journal, and then each item is entered into the ledger twice, as both a debit and credit.
Choose an accounting method: Cash or Accrual
For bookkeeping, you can either choose either a cash or accrual accounting method. If you’re choosing cash accounting, you only record transactions when money exchange hands. Using the accrual accounting method, you would record the income when you bill the customer, rather than waiting for payment. If your company has inventory, in most cases you will be required to use the accrual method.
Place your transactions into categories
Every transaction you make needs to be categorized when recording them. This helps to catch more deductions and relieves tension during evaluation of financial records. The way you categorize transactions will depend on your kind of business and industry. In general terms, your transactions are expected to be in five account types; assets, liabilities, equity, revenue, and expenses. Individual line items are then broken down into subcategories called accounts. If you’re doing it all yourself, you could make a note on each receipt.
Proper arrangements and storage of your documents
During the tax period, there is usually a high burden to show the validity of your expenses so to achieve proper documentation, you keep documents like receipts and records. You could also keep your records digitally. For example, you could save them on your cloud drive or to Google.
It’s easy to fall behind on your bookkeeping when you’ve got your hands full. You can stay on track by setting a date for yourself or partner(s) every month. You could make a circle on your calendar as a reminder or set an alarm on your phone. You can utilize that time to enter in your transactions, reconcile bank statements, and review your financial statements from the last month to track the progress of your business.
Conclusively, as an entrepreneur, in keeping your books, you can either do it yourself (DIY) or employ the services of a certified public accountant (CPA). While starting a business, you can apply the DIY approach. Doing it yourself, you could take consultations from a professional or more so as to avert error. Your DIY bookkeeping can be handled using a simple spreadsheet. In a larger business or when your hands are all tied up, you could employ the services of a professional.
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