Benefits of Bookkeeping for Small Businesses
When an entrepreneur first starts up a business, it’s exciting to make the first sale and watch customers walk through the door. Interacting with customers and meeting their needs is what you’re passionate about, so the thought of bookkeeping and tracking your finances is probably the last thing you want to do.
However, the success of a small business is directly tied to the ability to keep accurate, up-to-date financial records. It might be hard to be passionate about bookkeeping the same way you are about your small business, but there are so many benefits to it.
What is bookkeeping anyway?
Before we dive into the benefits of bookkeeping to small businesses, let’s discuss what it is in the first place. Bookkeeping is the recording of financial transactions on a daily basis. This can include purchases, sales, receipts, and payments from customers. As the name implies, it is the keeping of books, which is the recording aspect of financial accounting.
Bookkeeping falls under the umbrella of accounting, which is the much broader subject of processing and interpreting a company’s financial information through their accounts. A good way to think of it is, bookkeeping provides the financial information that accounts are made from.
A bookkeeper sends invoices, makes payments, manages accounts, and records day-to-day transactions like sales, purchases, receipts, and payments. They are recorded in the proper daybook, which works similarly to a diary. Daybooks include sales, purchases, purchase debts, petty cash, and a general ledger. A general ledger contains all the accounting data from the various daybooks, and is the backbone of a business’s bookkeeping.