Bookkeeping is a technology that allows you to trace the flow of money through your business. Money enters your business through sales and exits via purchases of inventory and equipment, payment of wages and other expenses, and finally into your hands as your net profit.
Even a very small all-cash business benefits from bookkeeping at least to the extent of taking advantage of tax breaks for businesses. Where there is any borrowing, including borrowing via a credit card, it is very difficult to know if you’re making a profit without doing bookkeeping.
- Bookkeeping allows you to take advantage of tax breaks for business without getting into trouble with the IRS or state departments of taxation.
- It allows you to know which parts of your business are most profitable
- It allows you to plan ahead and be confident you’ll be able to pay your bills
- Banks and other lenders require good bookkeeping records
- It helps you keep track of who owes you money, when their payments are due, and whether they pay on time
