Bookkeeping for small businesses helps streamline financial records, track financial performance, generate reports, file taxes, and do budgeting.
Accounting and bookkeeping are often daunting tasks that many small business owners either ignore, procrastinate, or postpone. However, unmaintained bookkeeping and accounting records limit your capability to track money, generate reports for banking, raise loans, apply for credit, etc.
Financial statements comprise a balance sheet, a statement of profit and loss, and a cash flow statement. There are legal requirements to submit financial statements to substantiate your business plan, especially while applying for SBA Loans, filing income taxes,
For any business, big or small, accurate bookkeeping is more than recording financial transactions; it is getting deeper insights into where your money is going, from where it is coming, and how it is growing.
Financial management is the core function as money, capital, or finance, as you say, makes the world go round, literally in the business world.
Bookkeeping or Accounting: What is right for a small business?
Many times it is used interchangeably, but to settle the matter at first, there is a difference between bookkeeping and accounting.
Bookkeeping is recording, classifying, and arranging your financial records according to rules and guidelines laid down by various accounting standards and principles adhering to either GAAP or IFRS, mandated by IRS, and additional directions by SEC if it is a listed company.
Usually, a startup or small business owner begins by recording financial transactions either manually or employing accounting software like QuickBooks, Wave, Akounto, etc. Knowledge of accounting is essential for maintaining proper and accurate bookkeeping and accounting records.
You need to choose between accrual or cash based accounting, single or double entry accounting, manual or automated recording etc. These choices will deeply impact your financial management in the long run.
Bookkeeping can be outsourced to various companies, freelancers, experts, etc.
Accounting is built upon bookkeeping, which is usually done by CPAs. It involves preparing reports for internal decision-making, budgeting, generating credit statements and financial statements for the tax season, and other legal compliance.
Bookkeepers may not require a formal degree in bookkeeping, but for accounting, CPA is needed.
In business parlance, bookkeeping normally refers to outsourcing, while accounting is in-house.
12 Benefits of Bookkeeping and Accounting for Small Businesses
1. Save time and Outsource Accounting and Bookkeeping
A small business owner can feel distracted and consumed by regular and continuous efforts needed to maintain accurate financial records. By outsourcing this function to a third-party service provider, you get expert services while saving considerable time that you can invest in product development, market research, or client acquisition.
For preparing financial statements and getting insights into the company’s financial health, you need accurate and detailed records, and adherence to financial reporting standards. Experts with experience and specialized industry specific exposure helps in regulatory and other legal requirements and compliance while also providing advisory services.
Outsourced accounting services also offer access to specialized expertise and advanced tools.
2. Affordable than in-house Accountant
Outsourced firms, agencies, freelancers, etc., typically offer flexible pricing structures tailored to the specific needs, expenses, income, and budgeting constraints of small businesses, making professional financial management accessible and affordable.
3. Day to Day-to-day bookkeeping
From tracking expenses and revenue to managing the cash flow statement and monitoring accounts payable and receivable, day-to-day routine bookkeeping forms the foundation of sound financial management for small businesses.
The benefits of bookkeeping on a regular basis is to have accurate records and updated bookkeeping and accounting records that lets you take informed decisions about financial decisions and managing business finances smartly.
4. Experts at the Disposal
Outsourced accounting and bookkeeping services provide businesses with a team of experienced professionals at their disposal.
The experts have specialized knowledge in areas like tax planning, financial reporting, and legal compliance, offering strategic insights tailored to each business’s unique needs and goals.
5. Free Periodic Consultation
Many outsourced accounting firms offer free periodic consultations to their clients as part of their service packages.
Periodic consultations serve as a proactive measure to identify areas and address potential issues before they escalate, helping businesses stay ahead of the curve and make informed financial decisions.
A successful business needs a strategy that helps it identify areas of vulnerability and plug the loopholes before it weakens its march to growth and scalability.
A good bookkeeping service provider helps in optimizing tax strategies, planning for future expenses and growth, interpreting financial statements, availing tax benefits, etc.
6. Industry Specific Support
Industry-specific support enables small business owners to stay informed about industry trends, benchmarks, and best practices, empowering them to make strategic decisions that drive growth and profitability.
Financial data alone cannot be read without context. For example, the cash flow management of manufacturing concerns cannot be similar to that of a drop shipping company. But within the same industry or sector, there will be a common trend in cash flow management. An industry-specific expert does not treat your financial data in isolation but highlights the factors and how they can be manipulated to achieve the desired outcome.
7. Tailored Bookkeeping Services
Unlike one-size-fits-all approaches, tailored services adapt according to the size, stage of business, industry, and long term business goals, ensuring that every aspect of financial management is customized for optimal efficiency and effectiveness.
Small business owners can collaborate with their outsourced accounting provider to design a bookkeeping plan that addresses their pain points, streamlines financial record keeping, and maximizes utilization of financial resources.
Implementing industry-specific accounting practices, customizing reporting formats, integrating with existing business systems, and tailoring bookkeeping services offer flexibility and scalability to accommodate evolving needs.
8. Payroll Support at Demand
Payroll support on demand offers scalability and cost-effectiveness, allowing businesses to pay only for the services they need when they need them.
One of the benefits of bookkeeping is paying for what you need and until you need it. Payroll support on demand provides small businesses with the flexibility to manage their payroll processes efficiently and accurately without the need for dedicated in-house financial resources.
9. Accounting Software for Accuracy and Automation
By leveraging accounting software, small business owners can streamline processes such as invoicing, expense tracking, and bank reconciliation, reducing manual errors and saving valuable time. Automated features such as recurring billing, payment reminders, and financial report generation simplify day-to-day operations, allowing businesses to focus on strategic priorities.
Accounting software like Akounto amplifies the benefits of the bookkeeping process by automating manual tasks and removing the scope of human error. The financial transactions are recorded and classified according to predefined rules, and you get a notification if something is wrong in the accounting system.
Digitally organized financial records can be easily converted to reports and charts to get deeper understanding of company’s financial health. You analyze trendlines and view anticipated red flags even before the appear protecting your financial performance.
10. Cloud Accounting Software Support
Cloud-based accounting software provides real-time updates and collaboration capabilities, allowing multiple users to work on financial data simultaneously and ensuring accuracy and consistency.
Multi-location and multi-user access to financial information lets you manage your business finances while on the go. With cloud-based accounting solutions, small business owners can securely access their financial data from anywhere with an internet connection, eliminating the constraints of traditional desktop software, making life easier.
11. Tax Season Readiness
Small business owners can leverage tax planning strategies, such as estimating quarterly tax, decision making and payments, tracking deductible expenses, and organizing financial documents, to optimize their tax position and minimize liabilities.
12. Catchup Bookkeeping and Data Cleanup
By conducting catchup bookkeeping, businesses can systematically review past financial transactions, identify missing entries, and reconcile accounts to ensure accuracy and completeness. This process involves organizing receipts, bank statements, accounts receivables, and invoices, entering data into accounting software and income statements, and reconciling balances to financial statements.
Data cleanup involves rectifying errors, duplicates, or inconsistencies in financial reports and records, such as incorrect categorizations, missing information, or reconciling discrepancies between bank statements, balance sheets, and accounting records.
Akounto for Bookkeeping
Soniya Malik, the CEO and Founder of Akounto has often shared her view that using accounting software and taking help from third-party service providers is a smart way to manage finances. In her opinion:
“Finances are such a crucial aspect of business as electricity is to the modern world. We need experts to count every dime and keep a tab on the financial pulse. The smaller the business, the more critical it is. Even the Lehman Brothers collapsed when their liquidity evaporated. You need money to pay salaries for the staff, pay for bills, raw materials, buy inventories, etc. You have already spent a lot, much before reaching the actual customer. Being casual with finances is worse than playing with fire while drenched in gasoline.”
Conclusion
Bookkeeping benefits are not just limited to organized financial records. Having expert advice and industry-specific assistance, you can spot trends for future income and expenses and likewise adjust revenue streams to maintain a steady cash flow. Proper bookkeeping services come with automated accounting, providing easy access to financial information and also simplifying the numbers for businesses and those who are not well-versed in accounting.
From recording of financial transactions to tax preparation, outsourced bookkeeping lifts a heavy burden from a small business owners while saving time and letting him/her focus on core business operations.
