Why Bookkeeping is Critical for Small Business Growth


Start-ups are usually more concerned with reporting a profit rather than recording financial information and grudgingly do so only to appease tax authorities. Bookkeeping for small businesses is important not only because it pays to file truthful tax returns, rather accurate financial statements can present a wealth of opportunities that can lead to growth and success of the business.

While many first-time business owners might find it cumbersome to deal with accounting procedures and practices during the course of a normal working day, outsourcing these services is the number one option utilized by such individuals.

Piquing Investor Interest through Bookkeeping for Small Businesses

For every forward looking entrepreneur, there is bound to be a time where personal equity proves to be insufficient and inviting investors on board is the only means for further growth. While most owners prepare financial statements only for tax purposes, investors are unlikely to invest till they receive a trends report on few major aspects of the business. This includes but is not limited to:

Income Statement: Investors are not charities. When they invest their money, they expect to see profits and an acceptable rate of return on their funds and hence they are extremely interested in the performance of the business from initiation right up till the present. This is to gauge the historical and expected return on investment, and income statements need to be prepared accurately in order to reflect correct figures.

Cash Flows: Liquidity is important to a business, because even if it is profitable, a company with little or no cash will cease to function within the short term. Professional bookkeeping for small businesses ensures that a skilled accountant is on top of things and is working to maximize liquidity along with profitability.

Balance Sheet: Another important accounting statement, the balance sheet tells the financial story at a point in time. The balance sheet is important as investors may be worried about investing in a company where ownership is diluted by partners or external borrowings. This increases risk of interference not only by creditors, but also increases the chances of conflict between partners.

Reading between the Lines of Financial Statements

Most aspiring and first time entrepreneurs make a crucial error by using accounting software to take care of their bookkeeping needs. While software may be efficient in handling the data presented, and in computing required profitability or liquidity ratios, there is one thing it is unable to handle: recommendations. Hence, the competence of human intelligence far outweighs the capability of accounting software.

For example, consider your accounts payable. These are what the business owes to other creditors, including invoices for raw materials, salaries payable and other utility expenses. These liabilities are typically short term in nature and are basically interest free loans. A successful business is able to prioritize these loans so as to avail trade and cash discounts as well as taking full advantage of the interest free funds.

A single accountant in a start up or a business owner micro-managing all of the business’ functions is unlikely to be able to read between the lines of what his financial statements are telling him. On the other hand, there are a wide variety of capable companies who provide bookkeeping for small businesses. These companies employ certified accountants and by virtue of handling a number of clients, are able to keep their fee low and affordable.

It is understandable that many entrepreneurs will be uneasy about handing off private financial information to third parties particularly when they are dealing with overseas providers who may or may not be subject to the same legal obligations. Therefore before outsourcing your accounting processes to a third party, it is best to do some homework. With the advent of technology and increase off-site virtual companies, there are plenty of competent companies within your area that can meet the degree of professionalism you require.