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April 29, 2021 Comments (0)

Importance of Proper Bookkeeping

Can you guess what the companies like Lehman Brothers, Enron, Toys R Us, Woolworths and Comet have in common? 

Other than the fact that these companies are no longer in business, the common thread that links them is that their downfall was in some way or the other associated with poor financial management.

Most financial advisors would have a condescending look, mouthing I told you so! But the fact remains that no matter the type or size of a business proper book-keeping is said to be the first step towards achieving success. 

May it be a business run by a single individual, an SME or a Fortune 500 company, bookkeeping is pivotal to understanding the financial standing of the organisation. Even though the benefits of proper bookkeeping are known to all, many businesses fail to implement this integral process. In this article, we will take you through the importance of proper bookkeeping and how it can benefit your organisation by increasing profits.

Why is bookkeeping important?

The simplest yet most complicated question most business owners ask is – why is bookkeeping so important? Why is so much emphasis given to maintaining books and on having an accounting system? Read on to find out… 

In a nutshell, bookkeeping serves two purposes

Firstly, it ensures that your business complies with national tax agency requirements and secondly it gives business owners a financial summary of the business.

If this is not enough, we have put together a list of the 5 most important reasons for proper bookkeeping. 

Proper bookkeeping is the first step towards business success 

Proper Bookkeeping is the first step towards running a successful business as it aids in assessing fiscal standing. It records sales, expenses and other data that assists in comparing the existing development of the company to past trends. This is particularly helpful while setting goals and achieving them. This coupled with an in-depth SWOT analysis can predict deficits and failures and identify procedural flaws.   

As they say, a penny saved is a penny earned, when you have a better understanding of your finances it becomes easier to save. 

Scale-up with a proper accounting system

After a point, almost all businesses look for external investment or work outside their primary peripheral. With a proper bookkeeping system, it becomes easier to find investors, contest for government tenders and apply for grants and subsidiaries. This widens horizons and makes it easier to upscale business processes increasing revenue. 

Proper accounting records help reduce outstanding payments

Most businesses run on a ‘service now payment later’ module. This increases market goodwill but can result in a serious financial hit. When you have a proper accounting / bookkeeping system in place, keeping track of outstanding payments becomes simpler. It not only gives you a summary of customer outstanding payments but also reflects the amount you owe suppliers. 

A well-maintained financial record is a snapshot of your company

The financial records of a company are like a health report it assesses the financial health of your business. It gives you snippets of your sales, profits, outstanding, assets, bank balance and all you need to know about your business. Having a better understanding of the business and finances is always a good idea for current and future business prospects. Tracking, measuring and keeping records of finances increases the confidence of business owners reducing sleepless nights and stress. 

Up to date books help comply with Government regulations

 Your financial books are a window to your business. When it comes to complying with government regulations it helps to stay on the right side of the law. In Singapore for example the IRAS – Inland Revenue Authority of Singapore requires businesses to maintain records for 5 years. This includes the receipts, invoices, profit and loss statements and ledgers. They conduct surprise audits and companies failing to produce financial documents are heavily fined. These documents can be produced in either digital or physical formats.

This is not something that can be done overnight and hence it is important to maintain a proper bookkeeping system from the very beginning. 

This makes it clear that proper bookkeeping is pivotal to businesses no matter the size, location or type. 

When it comes to accounting businesses have two options, they can either have an in-house team to maintain financial records or they can outsource the services. Having an in-house team would increase your outgoings. This in most cases is not a viable option for small businesses. This makes outsourcing accounting processes a practical choice especially in Singapore where the cost of hiring professionals is extremely high. This makes Enrich co an excellent choice as it not only houses a team of professional accountants but also has the latest accounting software and legal know-how at a nominal rate. 

Outsourcing accounting processes also ensure that your business complies with the ever-changing business laws. In Singapore for example the accounting professional will do your accounts in accordance with the guidelines set by ACRA & IRAS. Secondly, if the turnover of all the shareholders and individuals in the company is less than 10 million per annum it is exempted from an audit. This and other information along the same lines is easier to obtain from profession accounting firms as compared to an inhouse team.

Another important factor when it comes to accounting is ‘Time’. In bookkeeping and accounting time plays an important role as along with orderly maintenance it is also important to do things on time. In Singapore in order to file with IRAS the company needs to hold AGM, and file details with ACRA on time, you also need to file the profit and loss account and balance sheet every year, including computation and forms C/ C-S. When it comes to filing GST, you need to have your invoices uploaded on time. Adhering to specific guidelines is important to avoid unnecessary fines, penalties and court summons. An accounting firm helps keep track of all these guidelines and ensures that everything is done promptly. 

In a nutshell 

The importance of proper bookkeeping is clear by the fact that it is one of the most important factors that determine business success. It minimises debts and outstanding payments, fraud by employees and ensures that the business adheres to legal guidelines.

If you are not planning on getting an in-house accounting team, you can outsource accounting and bookkeeping services to accounting and bookkeeping firms like Enrich co. Remember a professional accounting firm will ensure all guidelines are met and will at the same time reduce overhead costs drastically. 

 So, Let’s keep our books diligently to grow our business confidently!

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