What is Bookkeeping and its Importance

Oliver Lee
August 17, 2022
 Mins Read

Most entrepreneurs hire the most trustworthy person to manage their books. Finances form the basic building block for any business. Businesses need capital to procure raw materials, pay employees, fund marketing campaigns, upgrade technology, and for other important things. To regulate cash flow in the business effectively, you need good bookkeepers by your side. 21 percent of the highest full-time financial positions in the U.S. small businesses go to general bookkeepers. In this post, we explore what is bookkeeping and its importance for businesses in detail.

What is Bookkeeping

What is Bookkeeping?

Bookkeeping basics include recording the company’s financial transactions accurately daily. Proper bookkeeping helps companies track financial data on the books to ease operations, investments, and financial decision-making. Without good bookkeepers, a company doesn’t know what their financial condition is, and what transactions happened within the business. Through efficient bookkeeping, businesses also get access to accurate data that they can use to invest and lend better. Additionally, almost all external entities like investors, government bodies, and financial institutions heavily depend on bookkeeping to assess if the company’s performing well. Not to exaggerate, the entire economy banks on reliable bookkeeping to clarify a business’s performance!

Let’s further examine what bookkeeping aims to do for businesses.

Objectives of Bookkeeping

Advantages of bookkeeping

1. Tracks Financial Information

As discussed previously, the bookkeeping team tracks all business transactions based on accounting rules and regulations. This regular tracking also reduces errors in the long-term. Bookkeeping practices include using journals for the short-term and transferring the data to a ledger to keep a permanent record.

2. Checks Whether a Company is in Profit or Loss

It also helps understand if a company is in profit or loss. Furthermore, the financial books also quantify the profits and losses by computing the difference between the total revenue and expenses.

3. Explains the Financial Condition of a Business

Through bookkeeping, entrepreneurs also understand how their business is performing. Using balance sheets, business owners can separate the value of assets, liabilities, and capital to give a clearer picture of the business’s financial health. Now, let us see the importance of bookkeeping.

7 Reasons Why Bookkeeping Is Important

1. Helps in Budgeting

Budgeting in Bookkeeping

Importance of Bookkeeping Good bookkeeping practices help entrepreneurs budget efficiently for the next business year. Neatly-organized and segregated income and expenses enable business owners to easily review their financial assets and expenses. Through a budget, businesses can create a solid financial roadmap for the future. They’re more prepared to tackle predictable future expenses with ease.

2. Tax Preparation

Importance of Bookkeeping

Managing Taxes with Accounting 40 percent of small businesses say that they need up to 40 hours per year to handle tax-related issues. Most companies will file taxes every year, and yet they haven’t optimized their processes. Through bookkeeping processes, businesses can ease the tax planning burden significantly. As a business owner, your company forms the bulk of your income. Hence, you need to track your business’ income to calculate your taxes in advance. Efficient bookkeeping records all your financial transactions in a single place and makes it easier for you to file your taxes.

3. Aids in Creating Reports for your Investors

Every business owner owes his investors an explanation of how he/she spent their money to grow the company. They’re also concerned about the overall growth of the company and what prospects the business has in its future. Bookkeeping handles all these aspects by tracking finances, preparing profit-loss statements and balance sheets. Additionally, various performance charts can easily demonstrate and document the company’s financial conditions effectively.

4. Organize your Finances

Every entrepreneur must know how to be organized and find the right information when they need it. As a business owner, you must be able to produce your financial documents to concerned authorities like the IRS, staff members, clients, lenders, and investors, if necessary. Not being able to provide your records to the IRS may leave you vulnerable to penalties and fees. Similarly, without proper documents, your investors or lenders may stop funding your company. Being clumsy with your books can cause irreversible damage to your relationship with important stakeholders. With bookkeeping, you organize your finances and make them easily accessible to critical parties.

5. Organized for Audits

Unorganized finances can trouble a business owner a lot. Small business owners need to multitask and handle a lot of business areas on their own. 5 percent of self-employed contractors worry that they’ll be slapped with financial penalties. They should at least not have to worry about their books. With complete and accurate books, they can rest easy and know that they’re ready for audits anytime. You’re no longer afraid of being caught off guard with the IRS. You’ll easily leave the bookkeeping to the bookkeepers and go about your other responsibilities.

6. Eases Profit and Growth Tracking

Bookkeeping clearly shows how profitable your business is. It provides an income statement that helps entrepreneurs determine their profitability more accurately. Without this data, it’s almost impossible to know if you’re performing well or not. Bookkeeping also helps with growth tracking by accumulating historical data. With such valuable and accurate information, businesses can recognize trend patterns, understand business cycles, and draw comparisons across different periods.

7. Boosts Cash Flow

With bookkeeping, entrepreneurs can easily improve their cash flow. Since they have a routine recording of their finances, they manage customer, employee, and vendor payments efficiently. Business owners need to ensure their customers are paying on time. Similarly, vendor payments also need to go on time to avoid late fees. Bookkeeping helps you receive critical data about your pending invoices like customer/vendor name, due sum, issued date, and last payment date that improves overall cash flow policies. You can also prepone customer payments and delay vendor payments until a day before the due date to retain more cash in your systems. Managing your books gives you the flexibility to plan your expenses carefully.


Awareness is the first step to solve any problem. Financial troubles are no different! With efficient bookkeeping services, you can fully understand and control your accounts efficiently. It gives you the confidence to handle any business issue well.

Invensis is an ISO 27001 certified Finance and Accounting outsourcing company and has established stringent security protocols in place to safeguard all the information of our clients. When you outsource your accounting and bookkeeping requirement to us, you can be assured of the confidentiality and security of your data at all times.

Our accounting and bookkeeping outsourcing team adheres to Generally Accepted Accounting Principles. We also maintain stringent quality cycles to ensure high-quality output within the minimum turnaround time.

Learn more about our services in detail – Accounting & Bookkeeping Service

Article by
Oliver Lee

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