- April 20, 2023
- Posted by: user
- Category: Business
Did you know that SMMEs make up more than 98% of South African businesses? It, therefore, goes without saying that SMMEs are the backbone of the South African economy, contributing 40% to the gross value-added (which is equal to GDP before taxes and subsidies). However, running a successful business requires more than just a great product or service; it also requires effective bookkeeping.
In this article, we’ll explore why bookkeeping is important for small medium-sized businesses and how it can help you make informed decisions to grow your business.
What is Bookkeeping?
Bookkeeping is the process of recording financial transactions and keeping accurate records of a business’s financial activities. It is a crucial part of running a small medium-sized business, as it helps business owners keep track of their finances, make informed decisions, and comply with legal and tax requirements.
Why keep your books (i.e. Bookkeep)?
1. Financial Control and Planning
One of the main benefits of bookkeeping is financial control. By keeping accurate records of your financial transactions, you can track your cash flow, revenue, and expenses. This information can help you make informed decisions about your business, such as when to invest in new equipment, hire more staff, or increase your marketing efforts. It also helps you plan your budget and predict future expenses, so you can make sure you have enough money to cover your costs.
2. Tax Compliance
Bookkeeping is essential for tax compliance. As a small medium-sized business owner, you must comply with tax regulations and submit accurate tax returns (read here on how to submit your tax returns). Keeping detailed records of your financial transactions will help you calculate your tax liability accurately, and ensure that you have all the necessary documentation to support your tax return. This can save you time and money, as you will not have to spend hours searching for receipts and invoices when it’s time to file your tax return.
3. Financial Reporting
Bookkeeping also helps with financial reporting. Accurate financial records can be used to create financial statements, such as profit and loss statements and balance sheets. These reports provide a snapshot of your business’s financial health and can be used to assess your business’s performance, identify trends, and make informed decisions about the future. Financial statements are also required by banks and other financial institutions when you apply for loans or credit. We at Mutualism also require financial statements when applying for funding.
4. Better Decision Making
Having accurate financial records can help you make better business decisions. By tracking your expenses and revenue, you can identify areas where you can reduce costs and increase revenue. This can help you make informed decisions about pricing, marketing, and staffing. You can also use your financial records to track the success of your marketing campaigns, so you can focus your efforts on the strategies that are working best for your business.
5. Investor Confidence
If you are looking to attract investors, having accurate financial records is essential. Investors want to see that your business is profitable, financially stable and has the potential to grow. By presenting them with detailed financial statements and other financial information, you can demonstrate that your business is a good investment opportunity.
6. Business Growth
Finally, bookkeeping is essential for business growth. As your business grows, so does the complexity of your financial transactions. By keeping detailed records from the outset, you will have a solid foundation for future growth. Accurate financial records can help you identify opportunities for expansion, make informed decisions about investments, and manage your cash flow effectively.
In conclusion, bookkeeping is an essential part of running a small medium-sized business. It provides financial control, helps with tax compliance, enables financial reporting, supports better decision-making, builds investor confidence, and facilitates business growth. While bookkeeping can be time-consuming, there are many software tools and services available that can simplify the process and help you stay on top of your finances. If you’re not confident in your bookkeeping skills, consider hiring a bookkeeper or accountant to assist you. With accurate financial records, you can make informed decisions that will help your business thrive.