Bookkeeping is a crucial aspect of any business, but it is especially important for new businesses. Many start-ups, which are otherwise successful, have been held back by their inability to maintain and organise financial records.
What a lot of new entrepreneurs find is – that they are juggling too many balls at once and don’t have the time or resources to invest in proper bookkeeping.
It cannot be stressed enough however, the importance of keeping on top of and organising financial records in the early stages of a business.
Here are some of the reasons bookkeeping is crucial for a start-up:
Decision making
In terms of goals – it is difficult for a company to plan for where they want to be when they don’t have an accurate perception of where they currently are.
Bookkeeping allows business owners to understand the key financial benchmarks of the business and how successfully it is operating – which in turn lead to more well-informed decisions.
Regular evaluation of the growth of a business is key to being successful as a start-up.
With proper bookkeeping, the decision makers will be able to make a more accurate evaluation on the current growth and performance of a business. This will then be useful in developing new strategies in order to improve these indices.
Taxes
Another thing which is directly related to bookkeeping, is the payment of numerous taxes.
If the balance sheet of a business is well organised and the cash flow in and out of the business is correctly documented, calculating taxes becomes a lot simpler.
Searching for bills and statements last-minute will become a thing of the past and the tax adviser will be spared time and effort correcting statements. This means they will be able to focus more time and effort on providing tax-related advice.
Cash-flow
Cash flow management is crucial to the success of a new business. Proper bookkeeping will help to prevent cash flow issues before they start.
A mistake many start-ups make is they take on too many responsibilities at once.
A potential problem with fast growth – is running out of money. This might sound contradictory but usually, money must be spent to complete required work before receiving payment for it. If a new business is taking on too many projects without sufficient cash or credit to cover them, clients could be left displeased.
How much is too much? With organised financial papers and records, this becomes a lot easier to predict.
Proper bookkeeping prevents this sort of situation altogether by allowing a business to lay out the costs of incoming orders and ensure they have the required money to finish them. If this is not the case, slowing down the growth may be a viable option.
Many new business owners start off by handling the bookkeeping aspect of the business themselves and delay hiring a bookkeeper until it is too late. It is important to assess when is the right time to pass on responsibilities to others.
Reporting to Investors
From an investor’s point of view, solid books are a necessity.
This also applies to potential investors. Let’s face it, very few people are likely to invest in a new business that’s disorganised financially.
If a business’s financial reporting systems are automated and consistent in conveying important financial information, investors are likely to satisfied. It shows them that the business understands their cash flow requirements and the key performance indicators that will lead to business growth.
Frequent updates and reports are common amongst start-ups in order to achieve a level of trust and credibility with the investor.
The bottom line
As a new business owner, it is crucial to keep the books in order right from the start. A lot of inexperienced owners treat bookkeeping as a burden and realise its true value once it is too late.
Proper bookkeeping can be one of the things that help transform a small business into a large-scale business. It can also be one of the main reasons a small business with potential ended up failing.
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