Are you a business owner and must have been hearing about the importance of bookkeeping accounting in small business and you are confuse because everything seems well with your business but you are still thinking if it important?
I feel you, I was there before because my small business was going well and I was in charge of the finance so I saw no need for any bookkeeping in my business. But after applying it into my small business, my business was more organize and productive in terms of growth in all aspect of the business.
In this post, I will be opening to you the concept of bookkeeping accounting in business planning and why it is of great importance to your small business.
Small businesses are subject to the same rules and regulations governing the operations ofbook all business enterprises. If the small business desires to grow and maximize profits, the way to go about achieving this, is to have updated financial records. The most important rule is ensuring that financial records are properly taken and necessary statistics kept.
This step derives its importance from the fact that the goal of any business for profit, is to offer goods/services at minimal cost, in order to maximize profits. The first step in financial documentation is captured by Bookkeeping.
Bookkeeping can be defined as the recording of financial transactions, and is part of the process of accounting in business. Transactions cover items such purchases, sales, receipts, and payments by an individual or an organization/corporation.
Several standard methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system exist. A bookkeeper is the individual responsible for the recording and collation of the daily transactions of the small business, usually inputted in the daybooks of the small business.
A daybook is defined as a chronological recording /diary of the financial transactions that occur in the small business. It is also widely referred to as the book of original entry.
Booking keeping Accounting is usually carried out based on the following concepts or principles:
• Business Entity Concept.
Bookkeeping accounting is undertaken based on the fact that the business is separate from the owner(s), therefore the cash assets of the business cannot be mixed with the personal funds of the owner.
• Going Concern Concept
This concept in Bookkeeping assumes that the business will continuously maintain records of all financial transactions and that the business will be run continuously.
• Accounting Period Concept
Notwithstanding that a business will maintain operations for a long period, this Bookkeeping accounting concept stipulates that the actual state of the business’ financial dealings be taken at regular intervals.
• Cost Concept
This Bookkeeping accounting concept evaluates the value of machinery and equipment at the cost price.
Importance of Bookkeeping Accounting to Small Business
The following are important reasons for the practice of Book keeping Accounting for small business:
1. Bookkeeping Accounting helps the small business with planning for the present and the future. Bookkeeping works in sync with budgets and projection, so the small business can properly situate costs, expenses, projected income and other sundry/miscellaneous items.
2. Bookkeeping Accounting helps the small business meet with financial deadlines and effect timely payments on items such as supplier fees, loans, debts and so on
3. Proper bookkeeping accounting will correctly capture the cash flow dynamics of the small business. Maintaining a robust cash flow for the small business is essential to the welfare of the enterprise.
4. Bookkeeping accounting can serve as tool in evaluating the size and value of the small business. The information obtained from bookkeeping will tell the owner/founder whether the small business is growing, stagnating or shrinking as well as help the entrepreneur make necessary adjustments in the operation and structure of the business.
5. Bookkeeping accounting can help the small business decide if it has the resources to hire more employees, especially when it becomes evident that the business is experiencing growth.
6. Proper Bookkeeping accounting can assist the small business owner decides to expand the level of operations, through the use of a financial facility. More often than not, most banks will request for the information Bookkeeping accounting provides, before a small business can be considered for a loan application.
7. Small businesses, in preparing their taxes and returns, will need the information provided by properly kept Bookkeeping accounting records. This is because bookkeeping captures all the financial records/documents of the business including receipts, invoices, IOUs, tellers, cheques receipts and payments, tenders etc.
8. Bookkeeping accounting for small business helps in the avoidance of getting penalized by financial and regulatory authorities. Once a small business’ financial records are not kept properly, financial regulators may institute an external audit of the financial health of the small business. This may usually mean that the small business may be penalized for this infraction.