It is important for every business, whether big or small, to keep good records for their business management and tax records. This is largely known as accounting. It is critical that business accounts are up to date and that the information provided in the records is supported by receipts, invoices and purchase orders, payment in and out among other financial documents.
Accounting is a broad field and thus has many aspects to it. There are many types of accounts that are more complex such as double entry accounting that results in reports such as the balance sheet and profit and loss account.
However, for small businesses simple, but understandable bookkeeping will effectively communicate the financial health of the business helping in better management.
Reasons for keeping records
- Accounting for small businesses has proved to be a worthwhile undertaking over the years. Many benefits will accrue to the business owner as a result of keeping accurate and updated records of the business’s financial activities.
- Maintenance of good records will provide reliable financial data that will assist in realizing more efficient operations, which will in the long run lead to increased profitability for the business. The owner of the business will know the strong and weak points of the business. They will then perfect the strengths as they seal financial loopholes.
- Accounting will enable the easy preparation of good financial statements that foster a good relationship between the business owner and their banker. In case the business owner may at some point seek a business loan from their bank for expansion of operations, such financial statements will come in handy.
- In the preparation of complete and accurate tax records, the regular records that have been kept over time are heavily relied upon. Accounting for small business is the best way to ensure that such records are readily available when needed.
- Accounting will help owners of small business to know the financial position of their business with the books giving an accurate picture of the business operations.
- Every business has maximizing profits as one of its goals for existence. Accounting is one of the ways a business manager can introduce measures to realize this objective. For small businesses, this is no different. Accounting for small businesses helps put the business on the path to profit maximization.
Stay tuned for our next post when we provide simple tips for small business accounting. In the meantime here is a link to more tips.