What Is Bookkeeping? Why Is It Important?

You might be losing valuable time and hard-earned money because of a poor bookkeeping process. Bookkeeping practices require more than just knowing numbers and books — proper bookkeeping for your business goals plays a vital role for it to succeed.

Recently, a successful doctor — we’ll call her Kelly — called us up to inquire about our tax services. We scheduled a discovery chat with her to review her business and all of her processes.

She said, “I really don’t have any accounting or bookkeeping to speak of. I just want to know about taxes. Someone told me that at my income level, I had better start making quarterly estimated payments (whatever that is), so that’s what I want to know about. How can you help me with that?”

This is a very common question. And, unfortunately, the answer is never that simple. We answered, “well, in order to know how much you need to be paying, we need to know how much you’re making. What are your revenues like? What is your net income? Are you in any debt?”

There was a long pause.

“Well, I have $179,000 in my account, so I guess my net income (revenues less expenses) is $18K”.

Unfortunately, that’s not the answer. While it could be that they have $18K in the account (and even that might not be true), your balance in the bank does not necessarily determine your profit. If someone received a grant or a loan, those funds are not considered revenue. And they would not work into your income statement in determining your profits.

Be careful about this. Many things that you think are expenses and deductions are in fact neither. A proper set of books, and an outsourced bookkeeper that can properly classify those transactions, will help you identify what your business is really making.

What Is Bookkeeping?

Bookkeeping is the process of recording, classifying, and organizing a company’s financial transactions and tax filings. It’s the foundation of your business’s accounting system, ensuring that every penny is accounted for. Bookkeepers maintain accurate records of income, expenses, assets, and liabilities, providing a clear financial picture of the business.

The Difference Between Bookkeepers and Accountants

Bookkeeping and accounting, while closely related, serve distinct roles in managing a business’s finances. Bookkeeping is the systematic process of recording daily financial transactions, ensuring that every income and expense is accurately documented and organized. It focuses on maintaining detailed and orderly records of all financial activities. Accounting, on the other hand, builds on the data provided by bookkeeping to analyze, interpret, and summarize financial information. 

Accountants prepare financial statements, conduct audits, and provide insights that inform strategic business decisions. In essence, bookkeeping lays the groundwork by capturing the financial data, while accounting transforms this data into meaningful insights that drive business strategy and growth.

Why is Bookkeeping Important for Businesses?

Tracking Profit and Growth

Tracking profit and growth involves recording all income and expenses accurately. This helps monitor revenue, manage costs, and identify profitable areas. Regular reviews of financial statements reveal trends, enabling informed decisions for sustained growth and strategic decisions.

Better Cash Flow

By recording transactions promptly, managing invoices efficiently, and regularly reviewing financial statements, cash flow improves. Budgeting and forecasting help anticipate cash needs, ensuring your business maintains the liquidity required for smooth operations and growth.

Tax Compliance

Ensure tax compliance by maintaining organized records and staying updated on tax laws and deadlines. Regularly reconcile accounts and use reliable software to track and report tax-related information efficiently.

Accurate Financial Report

Create financial reports by accurately recording transactions and updating financial statements regularly. Use reliable software to generate clear balance sheets, income statements, and cash flow statements, ensuring an overview of your business’s financial health.

Organized Financial Records

Organized financial records are important because they ensure accuracy, facilitate easy access to information, and support efficient financial management. They help in making informed business decisions, simplify tax preparation, and enhance transparency and accountability.

Meet Government Regulations

Meeting government regulations ensures legal compliance, prevent costly fines, and avoids audits. It also builds trust with stakeholders by demonstrating financial integrity and accountability. Regularly review and audit your records to avoid discrepancies and ensure adherence to all legal standards.

Help Budget Future Expenses

Budgeting future expenses is crucial for financial stability and effective resource management. It helps prevent overspending, prepares for unexpected costs, and supports sustainable growth by providing a clear financial picture.

Financial Roadmap

Record transactions, set clear goals based on past data, and develop an aligned budget. Use bookkeeping to forecast cash flow, review reports regularly, and adjust your plan as needed for informed decision-making and success.

Business Performance

Review financial statements and identify cost-saving opportunities. Use these insights to set budgets and plan for growth, ensuring better financial health and overall performance.

Signs that Your Small Business Needs a Bookkeeper

• Falling Behind on Financial Records:
  • If you’re struggling to keep up with recording your financial transactions, it’s a clear sign that you need a bookkeeper. Delays can lead to inaccuracies and make tax time a nightmare.
• Inconsistent Cash Flow:
  • Experiencing unexplained cash flow problems or having difficulty tracking where your money is going indicates a need for professional bookkeeping to manage and monitor your finances.
• Complex Financial Transactions:
  • As your business grows, transactions become more complex. A bookkeeper can handle these intricacies, ensuring everything is recorded accurately and systematically.
• Time Constraints:
  • If managing your books is taking time away from focusing on your core business activities, it’s time to hire a bookkeeper. Bookkeepers can handle the financial aspects of your business, allowing you to concentrate on growth and strategic planning.
• Tax Compliance Issues:
  • Missing tax deadlines, facing penalties, or struggling with tax preparation are strong indicators that you need a bookkeeper to ensure compliance and keep your records in order.
• Lack of Financial Insight:
  • If you lack a clear understanding of your business’s financial health, a bookkeeper can provide accurate reports and insights, helping you make informed decisions.
• Business Growth:
  • When your business expands, so do your bookkeeping needs. A bookkeeper can help manage increased transactions, payroll, and financial planning.
• Stress and Overwhelm:
  • Feeling overwhelmed by financial management tasks is a sign that you need a bookkeeper. An expert bookkeeper can reduce your stress by taking over the responsibility of maintaining accurate and organized financial records.

How To Find a Bookkeeper

Finding the best bookkeeper plays a crucial role and involves more than just a quick search; it requires looking for specialized expertise that aligns with your industry.

For mental health care providers, therapists, small business owners, and psychologists, LeichterCPA offers tailored and accurate bookkeeping services that understand the unique financial intricacies of your profession. With a focus on precise, accurate record-keeping and a deep understanding of the specific financial challenges faced by healthcare and small businesses, LeichterCPA ensures that your books are in order, allowing you to focus on what you do best.

Final Thoughts

Whether you’re managing patient billing, insurance reimbursements, or simply keeping track of business expenses, LeichterCPA provides the specialized support you need to keep your financials in perfect health. Having a qualified bookkeeper for your personal and business needs can increase your financial stability and help you make smarter business decisions.

A successful business requires help from experts. With realistic goals and a competent bookkeeper, you can easily address challenges and keep those worries at bay.

We’re here to help.

Leichter Accounting Services is an experienced CPA firm with a passion for accounting and dedication to our clients. We devote our energy to ensuring you have a solid financial foundation for growth. We offer a range of accounting and financial services, including bookkeeping, financial reporting, tax preparation, and more.