10 Reasons Why Bookkeeping Is Important To All Businesses

The main purpose of bookkeeping is to track the financial activities of a business. Alongside the growth of the business, bookkeeping becomes more complex with why the introduction of tax, assets, loans, and investments. Bookkeeping allows businesses to keep an up-to-date record of their revenue and expenses, the amount owed by the business, investors, and customers, and so much more. 

Obvious, detailed, and thorough bookkeeping is crucial for businesses of all sizes. This article will give you a detailed answer to the question “Why is bookkeeping important to all businesses?”

10 reasons why bookkeeping is important to all businesses

1. Optimizes your budget 

Bookkeeping is vital to any business because it makes budgeting so much easier. Bookkeeping helps you organize your income and expenses properly,  and makes it simple to review your financial resources and costs. A clear budget in turn creates a clear financial plan for your business. Then you can plan for future expenses and the anticipated resources needed to cover those expenses. 

See more: 9 Basic Types Of Bookkeeping That Every Bookkeeper Should Know.

2. Simplifies tax planning

Every business has to file their taxes at the end of the tax year. And for many accountants, tax season means scouring their desks to find missing paperwork. If this sounds familiar to you, then you may need to consider setting up a bookkeeping system. With an efficient bookkeeping process, you will have your financial information ready for tax season and your accountants will no longer need to spend hours on the tax filing process. Bookkeeping is important for your personal tax return as well. For business owners, a large part of their income comes from their business. To know their total annual income, they need to know what their business earned first. Having detailed balance sheets over time helps you predict your annual profits more accurately. 

3. Supports decision-making

The best decisions are informed decisions, and to make an informed decision, you need to have access to all available information. Bookkeeping tracks and compiles all of the information needed to support your financial decisions. 

An inaccurate understanding of your financial status and key performance indicators can lead you to make some erroneous decisions that could jeopardize your business. For example, in the short term, if you don’t understand your cash inflows and outflows correctly, you may experience overdrafts, late fees, and difficulty in making your payroll timely. In the long-term, if you don’t know your sales profitability, you may miss many opportunities to invest in the more profitable lines of your business, which leads to lower earnings. The same thing can happen to non-profit organizations. If you don’t know the true cost of your programs, you may make bad decisions on which programs to invest more resources in. Business owners can prevent these types of situations by maintaining accurate books and records. This will simultaneously optimize business operations as well. 

4. Tracks profit and growth

Bookkeeping provides financial information about your company through financial statements. Financial statements, including balance sheets, income statements, and cash flow statements provide information for a set period. For example, you can see if your business is profitable or not from the income statement. Together, all these statements take a snapshot of your business, allowing you to see how well the business has performed. 

Bookkeeping also helps to track business growth. Over time, you will collect months and years of data. You can use this data to observe trends and better understand your business progress and compare results across periods. By keeping regular financial records, you can map out your business goals more accurately and achieve steady growth. 

5. Manages and improves cash flow

Bookkeeping allows business owners to take control of their business’ finances. It draws a clear picture of how you spend money. As a business owner, you need to ensure that your customers’ invoices are paid on time. You can track when your customers and vendors pay their invoices through the routine records of revenues, expenses, liabilities, and receivables. You can also notice if you are paying your bills on time to avoid penalties. 

So, how does bookkeeping improve your cash flow? Bookkeeping provides information regarding your outstanding invoices, such as customer or vendor names, amounts, issued dates, and due dates. Business owners can use this information to implement better cash flow policies, such as shortening payment deadlines or adjusting the time of payment for vendor invoices. By doing so, you can increase the average amount of cash you have on hand at any given time. 

6. Greater focus on strategy

Disorganized books can weigh heavily on a business owner’s mind. Your bookkeeping should not be keeping you up all night. When your books are completed and in order, you can rest easy knowing that your company’s financial information is review-ready. You will then find your mind at ease and more focused on other elements of the business, such as planning and strategy. 

Tactical and strategic planning are at the core of business operations. As you are always thinking of growing and developing your business, bookkeeping will bring you closer to your short and long-term goals. You can use the information provided by bookkeeping to track the results of your strategy and adjust your goals accordingly. 

7. Maintains organized records

As your company’s financial records are important to a number of stakeholders – investors, lenders, customers, employees, etc, providing the information requested by these parties is vital to your ongoing operation. In this case, being organized is a skill that every business owner should be able to find information at any time. If you cannot provide records to the IRS, your business can face penalties and fees. If you don’t provide records that investors and lenders requested, it could result in the stoppage of cash flow and so on. Being disorganized with your books can compromise or even terminate your relationships with these parties. 

Furthermore, the last-minute stress of finding a crucial piece of paperwork can lead to missed deadlines and other errors. Businesses of any size can’t afford to make mistakes, and regular bookkeeping can help with that. By keeping an eye on your bookkeeping frequently, instead of leaving it to the last second, you will be able to maintain organized records and save a lot of time finding the information you desperately need. 

8. Meets law requirements

The law requires businesses to keep their financial records separate from the owner’s personal expenses. Failing to do this can lead to the termination of your business. 

Accurate financial records are essential to filing your tax return properly, and can also minimize the chance of being audited and/or incurring tax penalties. Businesses with bad bookkeeping practices tend to file late and may lack the proper documentation to support their filings. This can land you in deep trouble with the IRS. If you are audited and cannot support your income and deductions, the result can cost your organization a lot. 

9. Data analysis 

Bookkeeping matters because it helps with business analysis. Bookkeeping is a management tool used to analyze business performance. 

One of the most useful products of bookkeeping is the financial statement. Business owners should generate the financial statement regularly to know which lines of business are working or not working. Financial statements allow business owners to focus on their business’s strengths and improve on its weaknesses. 

Bookkeeping reveals the previous financial performance of your business. In order to make future plans, you need a good understanding of your situation. Bookkeeping will give you a clear picture of what does work and what does not. 

10. Makes it easier to report to investors

Investors and shareholders want to know the financial performance of your business so that they can determine the value of their investment. Let financial statements do the work. The combination of the balance sheet, income statement, and cash flow statement presents the value of the business. 

As stated above, the main product of bookkeeping is financial statements. Bookkeeping provides investors with up-to-date and accessible information. Then, investors will be able to make better, well-informed decisions, which is the ultimate purpose of bookkeeping. Bookkeeping is not only vital for current investors but future investors, too. Potential investors are more likely to invest in your business when you have organized information. Speaking of which, if you were an investor, would you invest in a company that did not have accessible and organized financial records? 

Final thoughts 

So now you have the answer to the question “Why is bookkeeping important?” It saves your money, time, and energy and helps you manage your business’s finances better. You can streamline the process even further by implementing a paperless bookkeeping system using Shoeboxed. Shoeboxed helps you clear your desks and turn your data into actionable information. Let us scan and organize your receipts, extract key data, create expense reports, and manage them in standard categorizations. Business owners no longer have to worry about keeping so many receipts, documents, and other accounting paperwork. Just leave it to experts. Contact us today and get ready to see how bookkeeping benefits your business. 

If you have any other reasons why bookkeeping is important to businesses, let us know in the comments!

How Digital Transformation Affects the Future of Accounting

Digital transformation is the integration of technology and digital applications into a business’ processes, with the main goal of increasing operational efficiency, enhancing the experience, and satisfying customers. Moreover, digital transformation creates a huge competitive advantage for businesses in the market.

Accounting is no exception. The future accounting profession has moved far beyond mere bookkeeping and payroll, as well as purchasing procurement. Technologies such as cloud-based data management, process automation, and artificial intelligence are unlocking businesses’ numerous potentials and elevating accountants’ skills. 

1. How digital transformation affects the future of accounting

Leveraging the cloud

“Working in the cloud” is a noteworthy working trend in the future of accounting. Forbes points out that cloud accounting is experiencing rapid growth as new intelligent technologies like the Internet of Things (IoT), Artificial Intelligence (AI) and machine learning permeate the market. Since cloud-based accounting integrates information into a cloud system, accountants will no longer need to keep tons of paper stacks to save business data! A cloud-based accounting system enables instant access to various data resources and computing capabilities. A significant benefit of the cloud-based system is the continual updating of information. It also allows accountants and clients to analyze data and make decisions based on cutting-edge information. According to the Journal of Accountancy, cloud-based technology also monitors information constantly, instead of intermittent analysis, whenever the information is updated to the system.

Various statistics carried out by cloud-based enterprises have proved that by 2020, by 2020, 78 percent of small businesses will be relying solely on cloud technology for accounting. Especially during the time of Covid-19, there is an increasing number of businesses investing money in virtual working technologies. 

An example of a cloud-based accounting system is Shoeboxed. Used by millions of SME businesses worldwide, Shoeboxed helps accountants get reimbursed fast and maximize tax deductions by tracking customers’ expenses and receipts. How does it work specifically? Shoeboxed receives customers’ receipts by mail (with free delivery) or scanned documents (with our mobile apps, available on Apple Store and Google Play Store). Then, Shoeboxed extracts the most important data from customers’ receipts to one organized place for easy and at-a-glance expense tracking. Customers can then view and export their data anytime and organize them in their categorizations. Shoeboxed also ensures that all of your receipts are legibly scanned, clearly categorized, and easily located. Shoeboxed proudly helps customers free their desks and drawers from paper receipts and brings the best solution in document storage for years!

Accounting task automation

A medium to a large-sized company may have to receive hundreds, even up to thousands of input invoices per month. It may take skilled accountants approximately 3 minutes for each operating step, such as reading, putting invoices to Excel tables, verifying information with the General Department of Taxation, synchronizing data on accounting software, and storing documents in the business’s standards. 

With the development of new technologies such as RPA (Robotic Process Automation), AI (Artificial Intelligence), OCR (Optical Character Recognition) in the 4.0 era, the daily, manual accounting operation at enterprises no longer needs human participation. The accountants will no longer need to spend hours and waste energy handling accounting tasks manually, which may cause error and fatigue during peak days. 

Here are some examples of applying RPA in the future of accounting: 

  • Manage Accounts Receivable: Bots can manage customers’ key files and credit approval, purchasing process and collect revenue. 
  • Manage Accounts Payable: RPA helps to transfer incoming invoice information (such as invoice number, received data or amount) from PDF files to SAP web applications and internal spreadsheets. This is a useful application that can reduce the invoice processing time by up to 60%. 
  • Cost allocation: RPA easily combines data from different sources (emails, Excel spreadsheets, Google documents, etc.) into one master file, then upload directly to the ERP system. The software can do these actions in a short time (i.e., under a minute).
  • Financial close & Financial reporting: Financial closing and reporting are decisive aspects of all businesses’ success. Ideally, a well-executed month-end close should be fast and smooth and take about three to four days to complete. Using RPA, in this case, brings businesses a successful month-end close and helps improve organizational performance. By automating all the workflow steps, an accountant can simplify the transitions between each stage of AP, centralize all AP operations, and preserve all payments and approval details together. With RPA, accountants can save time, prevent fraud and reduce errors in doing financial close reporting.

Artificial Intelligence 

Artificial Intelligence (AI) is one of the high technologies that enable a computer to do decision-based tasks previously conducted by humans. AI comes in multiple forms and in many aspects of life. Like machine learning, the more you use AI, the better it gets at data analysis and decision-making. The most common uses of AI in the future of accounting include automating tasks, machine learning, basic task automation, fraud detection, service investment, and deterministic loan approval processes. 

2. The future of accounting jobs with digital transformation

Technology will support, not replace accountants

The global workforce, especially accountants, may be concerned that technology will replace their jobs in the future of accounting. Even the most professional auditor may fear that they will lose their job to AI-powered machines. This is a common fear, however, according to the U.S. Bureau of Labor Statistics, the future of accounting jobs shows positive potentials with the prediction to grow by 4% between 2019 and 2029. 

In the future of accounting, AI technologies such as Machine Learning will support accounting and finance professionals to perform their tasks more efficiently. We can understand that AI supports the human workforce, but doesn’t steal their jobs. 

For example, AI drives straightforward processing, frees accountants from stressful and tiring tasks. In the meantime, they can spend more time interpreting and analyzing data collected by AI, and provide better-consulting services. To explain in a simple way, AI allows accountants to focus on tasks that require creativity, strategy, and ingenuity – features that AI can not really provide yet. So in the future of accounting jobs, manual tasks will be handled automatically and intelligently by AI, helping accountants perform their job in a modern way.

Future of accounting profession: More intelligent, strategic, and creative than ever

As Accounting Today has stated, “as with any evolution, whether Darwinian or technological, those who aren’t willing to adapt risk being left behind.”, accountants must keep moving forward. Future accountants must have the strong technical knowledge and necessary skills to perform the administrative, managerial, and analytical tasks that technology can’t do. For example, when more companies use the cloud-based system, accountants need to be proficient in using the cloud to analyze, manage, and transfer financial data. They can use their uniquely human skill to transform the insight from high-quality data collected by AI and provide more effective, realistic financial planning and reporting. They can also collaborate with peer businesses to leverage financial data to drive innovation, build more resilient and agile supply chains and develop business management plans that promote growth while ensuring continuity.

As automation becomes a major aspect in the accounting sector, all future accountants must develop the technical knowledge and skills to handle tasks that technology can’t do. Accountants may also need to take on an advisory role with clients, which requires them to analyze big data and trends. In this case, a data-driven mind is a key to success in the future of the accounting profession.

See also: The Digital Accounting Era: Five Steps For Accountants To Succeed.

Final thoughts

The future of accounting is undeniably changing with intelligent technology. Future accounting jobs will require accountants to be eager, adapt quickly, and evolve alongside the business. Don’t let yourself be left behind – start your business’s level of proficiency in the future of accounting now with Shoeboxed.

The Weekly Recap: Accounting Solutions Grow Up, REAL SMB Expenses and the New Executive Plan

Forget to check the Shoeboxed blog this week? No need to fret! Here is a quick review of what you missed:

1. Are you a baby, procrastinator or underachiever? We didn’t think so. Regardless, you might find some helpful hints in Accounting Solutions for Babies, Procrastinators, and Underachievers.

2. Are you interested in more document scans, faster turnaround time and unlimited access to the folks at 1800Accountant? Check out our all new Executive Plan!

3. Choose the right accounting solutions for your next business with Top 3 Accounting Solutions for Small Business Rockstars.

4. Did you know that utility costs for SMBs doubled in the first half of 2012? Check out our infographic for the details on this statistic, as well as lots of other great insights into How Small Business Owners are Really Spending Their Money.

5.  The Bubonic Plague wiped out almost half of Europe’s population in the 14th century. You should avoid these Accounting Solutions Pitfalls like the plague!

Stay organized this weekend,

The Shoeboxed Team