Bookkeeping skill and know-how are vital components to running a successful business. Poor financial understanding and management are some of the primary reasons why businesses fail. Sound financial principles and careful bookkeeping can help greatly increase your chances of having a successful business.
Why Understanding Bookkeeping Is Important
If you own a small business you are aware of how costly it can be to pay an accountant to manage day-to-day finances and bookkeeping. If you can handle the bookkeeping for your company yourself, then not only will you save on this expense, but you will always be aware of where the company sits financially.
Accurate financial records can show you if the company is profitable or not as well as prepare you for any upcoming financial difficulties. These days, many companies offer bookkeeping software that can help you keep track of all of the company’s financial happenings. However, it still is a good idea to have an expert periodically review your finances to guard against errors.
Questions That Bookkeeping Can Help You Answer
Accurate bookkeeping can help your business in several ways. By keeping records of sales, expenses, inventory, wages and more, you are able to quickly and accurately determine what steps to take to adjust your business accordingly for optimal results. You can use bookkeeping to answer the following questions about your business:
- Are sales increasing or decreasing?
- Are expenses increasing or decreasing?
- Do some months have higher sales or expenses than others?
- Do you have too much or too little inventory?
- Are expenses higher or lower than income?
These questions and more can be answered by careful bookkeeping and help your business reach its full potential. If you notice sales trends in certain months or higher expenses at a certain time of the year, then you may want to investigate how to use that information to your benefit. For example, if summer is a high sales period for your business, you know that you may want to obtain extra inventory and/or employees prior to the period of high demand.
By keeping track of expenses, you are able to see if you are paying too much for any particular expense and can search for an alternative option or try to lower the expense. Bookkeeping can also help you make other decisions with your business. This is especially useful if you are considering expanding or hiring more employees. You are able to view your records to make educated financial decisions and you will be more aware of the possible consequences.