3 Key Reasons a Business Needs to Keep Books
What are the main reasons a business needs to keep books?
If I were to have to narrow it down in level of importance, I would have to say the 3 key reasons for bookkeeping are:
1) One of the main reasons a business needs to keep books is so that the business owner has an accurate record of the totals of all income and expenses of the year for the reporting of annual income taxes
. It is extremely important to maintain good accounting records in case of an audit. Unfortunately, audits do occasionally happen whether you are doing what you're supposed to or not. However, there is no need to fear an audit if you are maintaining good daily records.
2) Another reason for bookkeeping is in order to help determine where the company may be able to cut back on expenditures in order to increase it's cash flow. More money anyone? Indeed, increasing cash flow is always a high priority and a very good thing in any business! It is good practice to review monthly business financial statements such as the balance sheet
and profit and loss statement
and take a good hard look at any excessive spending that can be reduced.
3) Finally, a business may need to keep books for bank reconciliations and knowing how much money the business has at any given time in order to be able to stay current on accounts payable
. If you don't know how much money you have at any given moment, how are you supposed to be able to maintain being able to pay your vendors in a timely manner?
Please consider the above 3 key reasons a business needs to keep books and be well in all your endeavors!