Bookkeeping generally involves recording a business’s day-to-day transactions and monitoring its financial records. This process can contribute to the success of businesses of all sizes and across all industries.

If you’re a business owner, it is essential that you make bookkeeping one of your top priorities. The following points illustrate why. They explain how bookkeeping can not only help you avoid costly obstacles but also how it can help to propel the growth of your business as well.

Reason 1: Financial Organization

Many compare bookkeeping to the process of balancing a personal checkbook. This is an apt comparison that serves to distill the value that bookkeeping offers a company.

It is challenging to operate with total confidence in your day-to-day life if you don’t properly manage your money. If you don’t keep your finances organized, you may struggle to pay bills, set a budget, or plan. On the other hand, generally speaking, it is far easier to thrive and get ahead if your finances are in order.

In this way, running a business is quite similar to succeeding in your personal life. Inefficiencies will be far less likely to bog you down if you stay on top of bookkeeping.

Reason 2: Tax Compliance

An accountant may be the professional responsible for ensuring a business complies with all relevant tax laws at a larger organization. However, if your business is somewhat small, a bookkeeper can handle your tax preparation function to ensure that the business is tax compliant.

Be aware that bookkeepers and accountants also tend to rely on each other in critical ways. For example, an accountant’s work often involves analyzing and reviewing the data a bookkeeper gathers. An accountant confirming that a business is complying with tax law will need accurate data from a bookkeeper to draw proper conclusions.

Reason 3: Budgeting and Forecasting

Effective budgeting and forecasting allow a business owner to make informed decisions about everything from whether they can hire more staff to whether they can afford to take out a loan. By tracking the day-to-day finances of an organization, a bookkeeper ensures a business owner has the information they need to set a realistic budget for any project they might wish to undertake, as well as for other regular business functions.

Reason 4: Cash Flow Management

Business owners don’t just need to know how much cash they have (or don’t have) to make smart financial decisions, they also need to know how it comes in, where it comes from, how frequently, and in what volume. Then they also need to know the corresponding cash outflows. Understanding cash flow in this manner can allow a business owner to identify areas where money is being lost when it should not be, as well as potential opportunities for bringing in more cash.

Monitoring cash flow is an essential function of bookkeeping.

Reason 5: Financial Analysis and Decision Making

A bookkeeper’s work often supports many other aspects of a business, from research and development to recruitment. The people who make decisions in these areas typically need to base their decisions on relevant financial data.

Who provides this data? A bookkeeper does. Without bookkeeping, you might not know whether you could afford to invest in developing a new product, expanding a department, and more.

Reason 6: Access to Funding and Investment Opportunities

It’s very common for businesses to rely on outside investors to support their growth. As your business grows, the odds are that you’ll be unable to fund its expansion without outside funding.

When you approach banks or investors, they will require that you provide thorough evidence and documentation indicating they won’t be taking an unreasonable risk by investing in your business and that they’ll likely recoup their investment. This requires providing them with objective and practical information about the financial health and potential of your business.

Again, a bookkeeper can offer this information. Be aware that bookkeeping doesn’t just involve tracking a company’s day-to-day finances and transactions. Often, bookkeepers are also involved in generating reports that summarize a business’ financial state.

Reason 7: Fraud Prevention and Detection

Any business can suffer because someone inside or outside the business attempts to defraud it in some way. One of the most effective ways to identify fraud and guard against it is to monitor a business’s finances for discrepancies. This is inherently a bookkeeping task

Reason 8: Time and Resource Management

Business owners typically have many responsibilities. To operate with maximum efficiency, it is important to simplify and delegate as many tasks as possible or necessary.

This is one more reason why bookkeeping can help you thrive as a business owner. When you hire a bookkeeper to handle your bookkeeping needs, you’ll be able to concentrate more of your bandwidth on the various other duties you may have.

However, if you can’t justify hiring a bookkeeper just yet, you could likely handle your bookkeeping with the help of bookkeeping software, even with minimal experience.

While you’ll have to devote some of your time to bookkeeping tasks if you handle this work yourself instead of hiring someone to do so for you, prioritizing bookkeeping will still free up your time and resources by guarding against financial complications and compromise that could otherwise impede the progress of your business.

Reason 9: Regulatory Compliance

Tax laws aren’t the only rules and regulations a bookkeeper can help you comply with. Depending on your industry, you may need to comply with various other regulations involving your finances.

Bookkeeping can help you in this capacity. As such, bookkeeping will continue to help you save money by guardingagainst fines and other such losses.

Reason 10: Business Growth and Expansion

Bookkeeping allows you to make strategic plans. It uncovers areas where financial losses may be greater than expected. It also tells you when you can afford to spend money, and when you should cut back on spending.

All of these inherent features of bookkeeping play a critical role in the growth of your business. Make bookkeeping a priority, and you’ll be more likely to unleash your business’s full potential.

Bookkeeping: A True Business Necessity

Bookkeeping is an important business function that you should not ignore whether you are the only employee of your business or if there are several. The same applies to whatever industry you operate in, whether you are a businessattorney or a local retail shop. Luckily, taking advantage of the numerous benefits that bookkeeping has to offer doesn’t need to be a challenge. Whether you hire a professional or use bookkeeping software to address this business need on your own, you’ll find that the time and effort you devote to bookkeeping will be beneficial to the business.

Author Bio

Kanayo Okwuraiwe is a business owner and founder of Telligent Marketing LLC, a company that provides various digital marketing services to businesses in select professional industries like legal, real estate, health services, accounting, and others. Connect with him on LinkedIn.

Debt is something that weighs heavily on the minds of most entrepreneurs. Some debt may be necessary to launch your enterprise, but taking on too much debt can ultimately sink your business. The important thing to remember is that when you use debt responsibly and strategically to advance your business goals, it can be an effective way to enhance growth and opportunity.

Debt 101: The Basics

Chances are, you’ve had loans and debt. A car loan, student loans for college, a mortgage, and credit card debt that you have not paid off in full all count. The annual percentage rate (APR) charged against the principal amount you borrowed is considered the “cost” of the loan. The APR is what the bank or lender charges every month for letting you borrow funds. Some APRs are very low and have a lesser impact on your repayment amount. Other APRs can be very high —upwards of 20%—and add significant time to a loan repayment schedule.

Good debt is generally considered a worthy investment. Federal student loans for college or job training that can help you launch a career are considered “good debt” because of their tax-deductible low-interest rates. 

While auto loans may have a higher interest rate, if you purchase a budget-friendly car (not a BMW or Mercedes) that helps you grow your business, it can be a good debt despite the depreciating value.

Using Good Debt to Your Advantage

Here are two way to look at good debt:

1. If your car loan is 6%, will having that asset help you earn at least 6% more than if you didn’t have the car? If you’re confident that the cost of the debt can easily be exceeded by the income you’ll earn, it may be a debt worth having.
2. If you look at debt from an accounting perspective, you are “in debt” when what you owe is more than what you have (cash and material assets). When deciding if taking on a business loan is right for your business, look at the total amount you would owe on the loan and compare it to what you already own or have saved.

Successful entrepreneurship means making sure you are only incurring liabilities that will benefit your productivity and your business’s value. Don’t be afraid of increasing your liabilities – just make sure you do your homework to ensure the debt will increase your profitability. This is especially true when determining if it’s the right time to hire employees. Payroll is a debt or liability you’ll have to pay, but in return, you’ll have employees to help you increase business and cash flow.

Examples of Bad Debt

Bad debt is something that is working against growing your business. It’s money you spend every month that isn’t productive. Here are three examples of where bad debt can make an appearance.

1. Perhaps your business is seasonal. In the off-season, cash flow dips, and incoming funds are reduced. It’s tempting to rely on credit cards to offer stability and balance during times like this. You assume the balance can be paid off in a few months once business picks up again, so you take on bad debt (with an outrageously high APR) rather than tightening the budget and slashing expenses.   
2. Are you trying to keep a business model afloat that is no longer competitive in your market? Taking on more debt may seem like a more comfortable solution, but it’s a financial hole you may not recover from. Better to take a hard look at your business plan and do some market research to see if you can reposition for success.
3. If you’re encountering early success with your business, it’s tempting to upgrade your lifestyle (trade in the budget-friendly car for a luxury model!) and reap the rewards of success. But remember, a business needs time to mature and develop a consistent cash flow. Give the business breathing room and time. Don’t let overconfidence put you in a position where an economic downturn or industry change will put you in a tough spot.

How to Avoid Bad Debt

The best way to avoid bad debt is to practice sound business practices to help your business grow and thrive. Here are a few:

• Avoid wasteful spending and always look to minimize expenses.
• Hire with a clear purpose and only when you can afford it.
• Never overextend the business – even with “good debt.”
• Have ample cash reserves and back-up plans to weather downtowns.

Staying aware of the difference between good debt and bad debt and how liabilities impact your business shouldn’t cause alarm. If anything, debt should be included in your business’ operating plan and funding options, and you should review it regularly to make sure it’s working productively. When you make wise choices about business loans and debt, you’ll be able to take your entrepreneurial ideas and turn them into a thriving, successful business enterprise.

About the Author | Katie Tejada is a writer, editor and former HR professional. She often covers developments in HR, business, recruiting, real estate, finance and law, but also enjoys writing about travel, interiors and events.

According to Merriam-Webster, the definition of the verb consolidate is to “join together into one whole” or to unite. In the debt world this means bringing multiple miscellaneous debts under the same umbrella, so to speak. The goal is to make it easier to keep track of debts and pay them off, shorten the repayment timeline on said debts and reduce the amount of interest you ultimately pay when doing so.

Using a debt consolidation loan to streamline other numerous debts is perhaps the most popular method here. Most, if not all, consumers would admit that being responsible for one monthly loan payment is simpler than trying to juggle various other debts — and that it’s preferable to pay less interest than more, of course.

But not every debt under the sun is eligible for the consolidation process, nor would it make a whole lot of sense to consolidate certain types of debts based on their interest rates. Keep reading to learn more about what it’s often possible to include in a debt consolidation as well as what types of balances are typically excluded from this process.

Types of Debt You Can Consolidate

The types of debts most eligible for consolidation are unsecured — or not tied to physical assets that the lender could repossess in the event of default.

This makes the following debt types solid candidates for consolidation in many cases:

• Credit cards: It often makes sense to consolidate high-interest, revolving credit card accounts because they tend to be one of the most expensive types of debts to carry over time. This is particularly true for cardholders paying the minimum amount due each month, as doing so usually extends the lifespan of the credit card balance by years and tacks hundreds if not thousands of extra dollars onto the price tag.
• Private student loans: Whether or not it makes sense to consolidate student loans usually depends on the type — federal vs. private — as well as their interest rate.
• High-interest personal loans: Say you took out a personal loan in the past when you had worse credit, but you’re now able to qualify for a more competitive interest rate. It could make sense in cases like these to take on new debt to pay off the old debt for less. Similarly, if you took out a payday loan in the past and now are able to secure a loan at a lower interest rate, it almost certainly makes sense to include this in the bundle.
• Medical bills: If your medical bills have gone to collections and there’s no way to negotiate with your provider, it may make sense to seek out a more reasonable interest rate via consolidation.

Notice we said “in many cases.” This is because there’s no one-size-fits-all rule determining if it’s a smart idea to consolidate certain debts. Much of the outcome rests on whether or not you can qualify for a debt consolidation loan at an interest rate lower than your current debts.

Types of Debt You Cannot Consolidate

On the flip side, secured debts that are backed by collateral are usually ineligible for consolidation, with the two biggest examples being mortgages and auto loans. However, it also doesn’t make much sense to consider consolidating these as they tend to carry low interest rates as is. For instance, it wouldn’t make sense to consolidate an auto loan on a used car at 9 percent APR if you’d only be able to qualify for a consolidation loan at 12 percent APR.

A good rule of thumb to remember: You can usually include unsecured debts with high interest rates in the debt consolidation process.