7 Reasons Why Bookkeeping is Necessary for your Business

Why Bookkeeping

Did you know that about 20% of small businesses fail in their first year? Or better yet, almost 50% of small businesses do not get through their fifth year.

But what is the reason behind these ventures not achieving long-term success?

Well, there are many. The inability to manage finances effectively is, undoubtedly, one of them. This is where the concept of bookkeeping comes into play.

Bookkeeping: What You Need to Know

Bookkeeping makes it easy for you to document the financial transactions in your business. These transactions include basic expenses, as well as, revenue.

Initially, bookkeepers used to record each transaction physically. However, with the advancement in cloud-based technology, this task has now become quite easy.

By following the right bookkeeping practices, you can get a clear picture of where your business stands and find it easy to devise growth plans. Additionally, it is one of the requirements imposed by the federal and local tax authorities.

In short, bookkeeping is considered extremely vital for your business, whether it is a startup company or an established firm.

Here are seven reasons why this is the case:

#1 Bookkeeping Assists You with Error-Free Budgeting

Assistance with budgeting is probably the first thing that people think of when they come across the term, bookkeeping. And why wouldn’t they? After all, effective budgeting helps business owners keep track of their income and expenses. This, in turn, allows them to analyze financial resources and expenses easily.

Moreover, a budget helps you figure out your business’ financial priorities and long-term goals. Not only does it help with planning but also with managing the finances of the business. History contains many examples of businesses shutting down due to not having control over their finances.

Therefore, take out some time and sort your budget via bookkeeping.

You May Read: Bookkeeping and Accounting

#2 Keeps Important Records Organized

With bookkeeping, businesses can easily organize their financial records and present them when needed. But who would request to check your company’s financial records? Well, it turns out that there are multiple parties that may show interest in looking up these details:

  • The IRS may request to look up certain documents that would help them determine whether you are paying your taxes or not.
  • Potential investors or clients may request to go through your business records to assess the venture’s performance.

The above-mentioned parties will react differently if you are not able to fetch the records they demand in a timely manner. While the IRS may end up fining you, investors might consider this slacking as a sign of unprofessionalism and refuse to fund your activities.

In either way, lack of organization can cause your company to take a financial hit. So, by doing bookkeeping right, you can avoid this problem and maintain organized data.

#3 Keeps You Ready for Tax Season

Depending on the revenue your business generates annually and the country in which it is set up, chances are that it has to file a tax return on a yearly basis. And who would want to spend hours or even days to locate crucial documents? That’s right, no one.

In order to streamline things in time for the tax return season, one must turn to bookkeeping.

What’s even more fascinating is the fact that bookkeeping also helps you file your personal tax return. It goes without saying that a considerable chunk of a business owner’s income comes from their business. So, in order to calculate their earnings, the owner must first figure out the amount of money their business brought in.

And in the presence of a bookkeeping process, the relevant financial details will be readily available to you once the tax season comes around.

#4 Helps You Analyze Your Business’ Performance and Make the Right Decisions

It’s not rare these days for companies to have a bookkeeping function in place for analyzing business performance. With bookkeeping, you can gain access to financial statements on a regular basis. This, in turn, gives you an idea about where your company stands in monetary terms.

Also, while going through financial statements, you can keep tabs on the cash coming in and that going out.

With such crucial information at your disposal, you will get to know which business techniques of yours are yielding appropriate results and which aren’t. In simpler words, these details tell you the strengths and weaknesses of your venture.

And it goes without saying that effective analysis leads to better decision-making. So, it’s true that bookkeeping allows you to make decisions that could take your business to the next level.

#5 Allows You to Stay on Top of Profit and Growth

When you are running a company, becoming stale is not an option. In fact, you should always be on the lookout for opportunities to grow your venture and turn decent profits. This is where bookkeeping might be of assistance to you.

Bookkeeping tells you the profitability of your venture by generating an income statement. In the absence of this data, there is no concrete way to find out where you stand.

Moreover, as time passes, bookkeeping will help you gather months’ and years’ worth of data. And this data, in turn, would give you an insight into the growth trajectory (if your business has shown a growth pattern at any point in time).

#6 Lets You Focus on Devising Strategies 

As per a SaaS survey, companies that tend to make $2 million or less per year mainly have higher growth rates. Moreover, a business must strive to record year-over-year growth in the range of 15% – 45% if it plans on surviving for more than five or ten years.

And devising strategies to grow is a responsibility that falls on the owner’s shoulders. With bookkeeping by your side, you get one step closer to achieving this objective.

Bookkeeping equips you with information that lets you stay on top of the results your strategy is yielding. Consequently, this data enables you to sort your short and long-term goals accordingly.

#7 Boosts Your Peace of Mind

It doesn’t need to be said that as a business owner, you already have so much on your plate on a daily basis. The last thing you need is to take stress over disorganized books.

This is where bookkeeping strives to make a difference. When your books are complete and organized, you no longer have to worry about different parties requesting varying details. Double-entry accounting makes your business’ information easily accessible.

This way, you can shift your undivided focus to growing your company.


The law requires you to maintain organized books that showcase your company’s financial information. Moreover, it shouldn’t come as a surprise that many businesses fail to thrive for more than five years due to poor accounting.

These and many other reasons make bookkeeping crucial for your business. Are you aware of any other benefits of doing books regularly? Sound off in the comments below.