How bookkeeping helps the survival of a business?
How bookkeeping helps the survival of a business?
Running a business without understanding the company’s financial position could damage your business incorrectly. Suppose you do not have accurate financial information about your business. In that case, you will not be able to make strategic decisions about the day–to–day operations to take your business to the next level. In this process, bookkeeping helps managers and stakeholders to run their businesses effectively and efficiently.
How bookkeeping helps the survival of a business?
Business plan
Are you running a small business? Are you facing financial difficulties to take your business off the ground? Then it would be best if you got some support with finances. Why do you not meet your bank manager to ask for some help? Do you know that he will first ask you for a Business plan?
I am sure you have never believed in the necessity of a business plan for you and your business.
I will show the main benefits of having a business plan below.
- You might be an excellent communicator, but remember, anything in writing can overtake verbal explanation. You will convince your bank manager by producing a well-crafted business plan with all the necessary information.
- It is not new for a bank manager, as entrepreneurs have often tried to convince verbally without success. A business plan will help you and your business clarify the present issues and forecast the future. You will have the entire document to check the situation.
- An entrepreneur who has planned the business will show enthusiasm and focus on the market. That will see clearly when that is transferred to a document.
- You might have many ideas and plans that will not give clarity; instead will provide confusion. You cannot compare it with something in written format, as that will be there forever. The plans in your mind might disappear at some point; therefore, you need to write them down as your business plan. A business plan will make you write valuable everything for you to follow. That means you saved ideas and projects in a document to use later. Otherwise, you would have lost it.
- Remember having a business plan will help you check your progress when running your business. It enables you to correct your mistakes if you have done anything differently that is not in the business plan. It is always better to refer to your business plan, especially when new.
A business plan will save you from the disaster of losing your business. Do you want to know the reason? You will continue to carry on with your business, but you will not be aware of your underlying
How bookkeeping helps the survival of a business?
Accurate Financial Reports
Financial reports such as the balance sheet, income, and cash flow statement are critical for ownership and executive leadership. The balance sheet illustrates assets, liabilities, and capital structure, while the income statement details revenue, expenses, and net income. The cash flow statement defines operational, investing, and financing cash inflows and outflows. All of this information comes from the general ledger system, updated by the bookkeeping process.
They are making strategic decisions.
Accurate financial reports allow business owners to make strategic decisions and help keep a business alive confidently. If there isn’t enough money to make payroll or meet the business’s obligations, business owners must know and take the appropriate steps to correct the situation. Without accurate reporting, a company can become off course, and management will not know until it is too late. It is especially true when it comes to capital structure and cash flow. Too much debt and high payments can spell disaster for businesses. Bookkeepers are essential for tracking issues.
Managing Receivables
Keeping on top of the money owed to a business is extremely important, especially if it is short on cash. Bookkeepers can generate accounts receivable reports that detail the aging of accounts receivable. These reports can help managers gauge cash inflows and the potential for collectability. Without bookkeeping and the deposits of checks in banks, and the closing of receivables in the general ledger system, it would not be easy to track receivables.
Managing Payables
Like accounts receivable, bookkeepers can create accounts payable reports that illustrate the money a business owes to third parties; if a company does not have enough money to pay its payables promptly, the business may need debt financing or other sources of capital.
Payables must manage in such a way that a business does not run out of working capital while at the same time not missing critical obligations that can impact the long-term success of the company. If the payments are not made on time, the ultimate effect will be the business owner will go into a bad credit situation.
Payment of Taxes
When bookkeepers update the general ledger and financial statements prepared, it becomes possible to pay estimated tax payments. It also becomes possible to fill out year-end tax returns. Estimated tax payments are based on net income, while tax returns itemize the gross revenue and expenses to arrive at net income. Without bookkeeping, the tax authorities would not get the proper amount of tax due. Tax troubles could ensue if accounting records fail to illustrate a business’s activities accurately.
Payment of Employees
Bookkeeping also helps facilitate employees’ payments through accurate record keeping, bank reconciliations, and communication with the payroll function. Suppose there is insufficient money to make payroll or pay the appropriate business entities. In that case, bookkeepers can help management determine how much money is needed and when it needs to be sent to the appropriate parties. Without an effective bookkeeping and payroll process, a business will fail to survive.
Do not forget to pay yourself.
When you run a business and fail to pay yourself, it can give you and your family an adverse effect on the company. Therefore, you need to pay yourself to keep you motivated and run the business effectively.
How bookkeeping helps the survival of a business?
Bookkeeping is a critical process that can make or break a business, which is essential to understand the accounting cycle, how financial consolidation works, and document retention standards. There is no reason to let a great concept disappear or a new business shut down because financial reporting and record-keeping are insufficient.