So, you’re an aspiring entrepreneur, you’re ruminating about the process of product design, superb customer service that you would give for your customers, the marketing strategy that you would implement in order to attract loads of clients, and more. You’ve contemplated all about this, but have you paid attention to bookkeeping? Yes, bookkeeping! How about the financial aspect? Do you know that if you neglect this department, your business would instantly go downhill?
Bookkeeping is the act of recording business financial transactions on a day-to-day basis. Sounds boring, isn’t it? Well, boring might it sounds, you still have to pay attention to it. Here’s why:
1. It helps make important decisions.
As a business owner, you always find ways on how to expand and grow your business. You’re busy focusing on the day to day operations at your company, meeting up with a potential client, outlining the goal for the team, and more. You’re probably asking me right now this question: How does this relate to the benefits of bookkeeping, then? Well, I’ll give you a scenario for this. Say you run a business consultancy firm, and you see that it’s going pretty good! But you always had the desire within you to open up a new business that’s related to a coworking space, if you don’t know a thing about it yet, well, it’s a type of business where students, freelancers, and start-up companies can rent their own small space and actually work together with the other ones.
Of course, starting your own coworking space business involves capital, and where do you get most of your money? Of course, it’s from your current business right now, right? How would you know if it’s time to finally start that dream of yours? Want to know how? Well, it’s this: It’s through checking your financial books!
Bookkeeping helps you make an accurate and detailed entry when it comes to the figures. It helps in determining whether or not it’s time to start a new business, expand that current business that you’re currently running right now, to lessen the spending, and more. You might see bookkeeping as a tedious and boring task, but if you come to think of it, on how it fits on the bigger picture, it actually helps you make better business decisions.
Besides, you can’t run your business without a healthy cash flow, and accessing a healthy cash flow can only be determined by the first step, and it is through bookkeeping.
How about you? Are you paying attention to your bookkeeping right now? Well, you should care like your business depends on it, because the fact of the matter is…
2. Helps track cash flow.
I’ve introduced cash flow on the first number of this article, have you noticed? Well, I did that on purpose to introduce the topic for the subsequent number.
Ah, the cash flow, the importance of maintaining a healthy one in every business. You see, in any type of business, cash is king!
If you don’t know the cycle of a business yet, well, I’ll introduce it to you right now. In a business, it’s vital to always have cash at hand. I’ll give you another scenario for this. Say, you’re a neophyte entrepreneur, and you have 5 programmers on your team, and you had a Taiwanese client who agreed to pay your company in exchange for a website for his business, because he’s going to launch the business within the next six months. Of course, it’s your job to pay your programmers for them to actually do the work. On the fifth month, you decided to buy a new laptop for the company. There are two options: You can get it in an instalment basis, or you could get it, and pay it in full. The price of the laptop would cost you 50,000 pesos. You decided to get it in full, paying all of the 50,000 pesos just to get that laptop. But here comes the pay day of your programmers, your programmers get 10,000 pesos a month which would be 50,000 pesos because you have 5 of them.
The dilemma came to you as you have no cash at hand. You made the wrong decision to get enticed on the newly launched laptop at the market, and forgot the important principle in business, and that’s: Cash is always king!
You promised to pay the five programmers on the next month, but the five programmers decided to leave your company in an instant, just because of a late payment. The ongoing project was left hanging leaving you no personnel to finish the project for the company’s client. The Taiwanese client didn’t pay you, and you have no programmers to finish the project.
Yes! Instances like this happen in businesses, especially if you’re new. Anyway, what’s the moral lesson of the story? The novice entrepreneur didn’t know the principle that I am now passing on to you.
Cash is king!
He finally learned his first business lesson through experience, but you now learned it, because I already told you. High five!
And oh, he forgot to do bookkeeping.
If he had only paid attention to do bookkeeping, then he would have known earlier if he has the sufficient money at hand or not.
3. You’re ready when it’s already the tax season.
“I love the fiscal season!” said no entrepreneur ever.
The end of the year is the time where you pay your income taxes to the government. You just can’t escape it, so you have to abide by the law. Keeping your books organized and detailed would eradicate the need to scramble through loads of papers, invoices, receipts, and more when the tax season has finally arrived. You’ll be fully ready and prepared.
4. It makes you attractive to the investors and the lenders.
Investors love to see where their money is going when they finally decided to invest at your company. Since, bookkeeping helps produce the following types of financial statements:
a. Balance Sheet
b. Income Statements
c. Profit & Loss Statement
d. Cash Flow Statements
e. Statement of Owner’s Equity
Creditors, lenders, and investors use this as the basis if your business is profitable or not. With the right bookkeeping process being done, financial statements would be the output of that. Besides, you want to keep them coming, you want to attract more investors to come and invest in your company; that would benefit you because you can now have the capital/money to expand and make your business grow.
5. Accurate computations with payroll.
It’s vital for your employees to get the right amount of pay every payday, bookkeeping can help track whether a certain employee is getting the right amount of pay or not, this helps avoid underpaying an employee or overpaying them. With the right person doing the bookkeeping for you, you can guarantee that you can have happy and satisfied employees working for you, in the financial aspect, of course. Besides, bookkeeping can also monitor the extra bonuses, the sales commission, the 13th month pay, the overtime pay, and more. These figures have to be accurate and precise, and it can only be done through effective bookkeeping.
6. Helps avoid delayed payments from customers or clients.
In accounting, revenue does not always equal cash, but that doesn’t mean an unpaid 10,000 pesos from a client would not be labelled as revenue, though. It’s still is, but it’s labelled on the accounts receivable for now. Your accounting department needs to create an invoice for that specific company who owed you 10,000 pesos, to notify them early. What if you have loads of instances like this? Of course, creating an invoice would be a tedious process, but it’s necessary to keep track of each and every one of those clients who owes you money. Bookkeeping can help you closely monitor those accounts receivables, this helps avoid late payments, and this process is important to avoid overlooking some of the clients who owe you money. Cash is king, right? So, closely monitor accounts receivables by bookkeeping!
7. Helps avoid penalties.
What if we change the equation? This time, you’re the one who owes your supplier money worth 20,000 pesos for the new clothing supplies that you just recently ordered from them. You don’t want to commit unnecessary penalties from them just because you incurred a late payment, right? So, bookkeeping can help track not only the accounts receivables, but also, the accounts payables, as well. This helps establish proper rapport with vendors and suppliers, and who knows? They might even give you discounts, because you’re the customer who pays on time. Thanks bookkeeping!
8. You’re prepared when the auditor knocks at your door.
It always pays to be prepared, you just never know when the audit man would notify you and conduct an audit; you can’t blame them, though, because they’re just doing their job. It’s both resource and time consuming, but this can be avoided if from the very start of your business process, you’re already maintaining and you’re already carefully keeping your financial books in order. If you do this process consistently, then the audit process would hasten, and the audit man would leave you alone for you to continue on running your business.
9. It’s good for compliance.
You don’t want your business to shut down just because you failed to maintain keeping your own financial books, do you? It’s mandatory according to the law for you to keep your financial transactions recorded.
So, now that you know the value of bookkeeping, the next question is: who does your bookkeeping at your company right now? Check out our accounting service content.
To end this article, I would end it with a quote that I personally created:
“In business: If it wasn’t recorded, it didn’t happen.”
Happy Bookkeeping everyone!