Bookkeeping is the act of recording and maintaining financial transactions of a business. There are two main ways of maintaining books of accounts: manual and automated. The manual way is ideal for small businesses that don’t have large data.
On the other hand, automated method is ideal for large corporations that have large data to compute and can’t be able to compute it manually. Whether bookkeeping is done manually or it’s automated, it has the following advantages and disadvantages.
When you maintain books of accounts for some time, you are bound to have data that will help you in making informed decisions. From the data, you will be able to tell if your business is progressing, stagnant or retrogressing.
Depending on the direction that your business is taking, you will be able to know when to hire or fire. In addition to this, the financial data that you obtain will enable you to access loans from finance lending institutions. Using the data, you will convince the credit institutions that you deserve to be given a loan. It’s even easier to get a large loan if your data is reflecting an upward trend of your business.
It’s a legal obligation
No company is allowed to operate under the table; therefore, when you keep books of your business, you not only get crucial data, but you also meet your legal obligation. Worldwide, companies are required to track and document their income and expenditures. This is meant to ensure that businesses pay the right amount of taxes. If you don’t keep records of your business, you stand to face government penalties which can amount to closure of your business.
When you have books of accounts, you create transparency especially if you run a partnership business. Any business partner can access the books and see how the business is faring. In addition, the books of accounts make it easier for potential investors to see how your business is doing.
Just like everything else in life, bookkeeping has its fare share of shortcomings.
Whether automated or manual, bookkeeping requires plenty of time before all transactions are finalized. This is because time is required to research ledger discrepancies, collect financial records and track errors.
It’s no doubt bookkeeping is costly-especially in a small business. If you can’t maintain the books of accounts by yourself, you need to hire an accountant who will balance all the financial transactions for you. While there are many accountants who can do this, a good accountant doesn’t come cheap.
These are the main advantages and disadvantages of bookkeeping. Do the disadvantages outweigh the advantages?