4 Reasons Why Bookkeeping Is Important to SMEs




Many entrepreneurs operating big or small businesses often overlook the bookkeeping aspect of their enterprises.

Without proper business records, it becomes difficult to predict the future of your business since there is no clear information that stipulates the financial health of your business.


Bookkeeping refers to the practice of recording all the financial transactions such as purchases, revenues, sales, receivables, payables and receipts in an orderly manner as per the accounting procedures so as to facilitate sound financial planning.

In any business entity, the most common business  records that should be kept includes; cash book, profit and loss account, balance sheet, sales invoice, debit book, cash payment vouchers, bank transactions, assets records, inventory and payroll records among others.

Recent research has indicated that majority of business failures have been contributed by lack of proper bookkeeping practices despite having brilliant business ideas.

Therefore, this article aims to enlighten every entrepreneur why proper bookkeeping practice is very important for their business growth.

1. Bookkeeping is used to make Business Forecasting

When you have clear business records, it enables you to make sound future projections. Based on the information at hand, the entrepreneur is able to scrutinize the business financial health which aids in proper budgeting reflecting the business growth rate.

You will be able to prioritize your business needs as well as allocate reasonable funds to various departments.

2. It serves as a tool for sound financial management

Bookkeeping forms the basis of financial analysis and management. From the accounting records, the entrepreneurs can be able to assess the financial position of their businesses based on cash flow data recorded.

This enables the concerned parties to make the necessary changes to adjust any irregularities.

Thus, business owners are able to keep up-to-date records which include; on-time invoicing, filing of taxes and payment to suppliers a practice that makes the business more competitive.

3. Bookkeeping is a necessity when applying for funding

With clear records of books of account, your business history is easily determined and investors will have more confidence to invest in your business as opposed to a business that has no clear track records.

When you approach a bank or any other potential investors, you will be required to produce trusted documents showing your business Balance Sheet, Statement of Income among other for you to qualify for funding. Thus, proper bookkeeping practice makes this process easy.

4. It is a statutory requirement

Any business that is in operation is obligated to file its annual tax returns as outlined by the law. For you to file tax returns, all the necessary details showing your annual business activities are consolidated through bookkeeping so as to determine the amount of taxes that your business is supposed to file.

Therefore, preparing and keeping up- to- date Balance Sheet, Profit & Loss account and Cash Flow statements help a lot  in tax planning for your business and facilitates convenient auditing inspection exercises to ensure  statutory compliance.



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