What is Bookkeeping and Why is It Importance

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What is Bookkeeping and Why is It Importance?

Most entrepreneurs hire the most trustworthy person to manage their books. Finances form the basic building block for any business. Businesses need capital to procure raw materials, pay employees, fund marketing campaigns, upgrade technology, and other important things. To regulate cash flow in the business effectively, you need good bookkeepers by your side. 21% of the highest full-time financial positions in the U.S. small businesses go to general bookkeepers. In this post, we detail what bookkeeping is and its importance for companies.

What is Bookkeeping?

Bookkeeping basics include recording the company’s financial transactions accurately daily. Proper bookkeeping helps companies track financial data on the books to ease operations, investments, and financial decision-making. Without good bookkeepers, a company doesn’t know its financial condition and what transactions happen within the business. Through efficient bookkeeping, businesses also access accurate data that they can use to invest and lend better. Additionally, almost all external entities like investors, government bodies, and financial institutions heavily depend on bookkeeping to assess the company’s performance. Not to exaggerate, the entire economy relies on reliable bookkeeping to clarify a business’s performance!

Let’s further examine what bookkeeping aims to do for businesses.

Read more: Outsourcing Finance and Accounting Services: The Complete Guide

Objectives of Bookkeeping

1. Tracks Financial Information

As discussed previously, the bookkeeping team tracks all business transactions based on accounting rules and regulations. This regular tracking also reduces errors in the long term. Bookkeeping practices include using journals quickly and transferring the data to a ledger to keep a permanent record.

2. Checks Whether a Company is in Profit or Loss

It also helps understand if a company is in profit or loss. Furthermore, the financial books also quantify the profits and losses by computing the difference between the total revenue and expenses.

3. Explains the Financial Condition of a Business

Through bookkeeping, entrepreneurs also understand how their business is performing. Using balance sheets, business owners can separate the value of assets, liabilities, and capital to give a clearer picture of the business’s financial health.

Read more: What Is the Difference Between Bookkeeping and Accounting?

7 Reasons Why Bookkeeping Is Important

1. Helps in Budgeting

Importance of Bookkeeping Good bookkeeping practices help entrepreneurs budget efficiently for the next business year. Neatly-organized and segregated income and expenses enable business owners to review their financial assets and payments easily. Through a budget, businesses can create a solid financial roadmap for the future. They’re more prepared to tackle future predictable expenditures with ease.

2. Tax Preparation

Managing Taxes with Accounting 40% of small businesses say that they need up to 40 hours per year to handle tax-related issues. Most companies will file taxes yearly, yet they haven’t optimized their processes. Through bookkeeping processes, businesses can ease the tax planning burden significantly. As a business owner, your company forms the bulk of your income. Hence, tracking your business’ income to calculate your taxes in advance would be best. Efficient bookkeeping records all your financial transactions in a single place and makes filing your taxes easier.

3. Aids in Creating Reports for Your Investors

Every business owner owes his investors an explanation of how they spent their money to grow the company. They’re also concerned about the overall growth of the company and what prospects the business has in its future. Bookkeeping handles all these aspects by tracking finances and preparing profit-loss statements and balance sheets. Additionally, various performance charts can effectively demonstrate and document the company’s financial conditions.

4. Organize your Finances

Every entrepreneur must know how to be organized and find the right information when needed. As a business owner, you must be able to produce your financial documents to concerned authorities like the IRS, staff members, clients, lenders, and investors, if necessary. Not being able to provide your records to the IRS may leave you vulnerable to penalties and fees. Similarly, without proper documents, your investors or lenders may stop funding your company. Being clumsy with your books can cause irreversible damage to your relationship with important stakeholders. With bookkeeping, you organize your finances and make them easily accessible to critical parties.

5. Organized for Audits

Unorganized finances can trouble a business owner a lot. Small business owners need to multitask and handle a lot of business areas on their own. 5% of self-employed contractors worry they’ll be slapped with financial penalties. They should at least not have to worry about their books. With complete and accurate books, they can rest easy and know they’re ready for audits anytime. You’re no longer afraid of being caught off guard by the IRS. You’ll easily leave the bookkeeping to the bookkeepers and go about your other responsibilities.

6. Eases Profit and Growth Tracking

Bookkeeping clearly shows how profitable your business is. It provides an income statement that helps entrepreneurs determine their profitability more accurately. Without this data, it’s almost impossible to know whether you’re performing well. Bookkeeping also helps with growth tracking by accumulating historical data. With such valuable and accurate information, businesses can recognize trend patterns, understand business cycles, and draw comparisons across different periods.

7. Boosts Cash Flow

With bookkeeping, entrepreneurs can easily improve their cash flow. Since they have a routine recording of their finances, they manage customer, employee, and vendor payments efficiently. Business owners need to ensure their customers are paying on time. Similarly, vendor payments must also go on time to avoid late fees. Bookkeeping helps you receive critical data about your pending invoices like customer/vendor name, due sum, issued date, and last payment date, which improves overall cash flow policies. You can also prepone customer payments and delay vendor payments until a day before the due date to retain more cash in your systems. Managing your books gives you the flexibility to plan your expenses carefully.

‍Read more: Top 10 Bookkeeping Tips for Small Businesses


Awareness is the first step to solving any problem. Financial troubles are no different! With efficient bookkeeping services, you can fully understand and control your accounts efficiently. It gives you the confidence to handle any business issue well.

Bestarion is an ISO 27001-certified finance and accounting outsourcing company and has established stringent security protocols to safeguard all our client’s information. When you outsource your accounting and bookkeeping requirements to us, you can always be assured of the confidentiality and security of your data.

Our accounting and bookkeeping outsourcing team adheres to Generally Accepted Accounting Principles. We also maintain stringent quality cycles to ensure high-quality output within the minimum turnaround time.

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