What are the advantages & disadvantages of Bookkeeping?

Acurate bookkeeping is a necessary task for any small business owner who plans on running a profitable business that will grow over time. Bookkeeping is the act of recording business financial transactions. Many small businesses simplify this process by using financial software tailored to the needs of small businesses.

Financial Status

Bookkeepers record financial entries, generate reports, pay bills, invoice customers, process payroll and much more. When starting out, business owners may handle their own bookkeeping. The primary advantage of bookkeeping is that it helps business owners understand their company net worth and stay in control of the finances. Information available includes how much money the business owes and to whom and how much money the business is owed and from whom.

Credit Score

A good credit score is a boost to your company's reputation and is a key tool to help you secure outside financing or credit when needed. Bookkeepers track money owed, bill due dates and bank balances. Keeping track of these three things allows business owners to pay bills on time with checks that do not bounce and keep track of the company's debt overall.

Fraud

Criminals attempt to commit fraud against companies through methods including check forgeries, identity theft and embezzlement. Advantageously, standard bookkeeping practices will catch almost all of these criminals. Disadvantageously, sometimes it is the bookkeeper who is the criminal. You will be more likely to catch any criminal, even if it is the bookkeeper, with a few standard practices. Familiarize yourself with your company's financial records, know the vendors and why they are vendors and sign all your business checks after reviewing the attached invoice. Question unfamiliar transactions and question report totals that look inaccurate. It is a bookkeeper's job to record financial transactions and generate financial reports; it is a business owner's job to stay in control of his company's finances.

Accuracy

It is disadvantageous that your records are only as accurate as your bookkeeper. A bookkeeper can make a typing mistake that can affect the accuracy of your financial records. The advantage of bookkeeping is following standard practices, through account reconciliations, the bookkeeper will catch these mistakes, usually within a month. Financial reconciliation is a process of comparing your recorded financial transactions against the recorded transactions of the financial institution. Where there is a discrepancy, the bookkeeper will correct the error if she determines it is hers or call the financial institution and request that it correct the error.

Time and Money

Some business owners view the time or money spent on bookkeeping as disadvantageous. A business owner who does not want to spend time on bookkeeping must buy financial software. If a business owner handles his own bookkeeping, he takes time away from other activities that generate income for the business. If a business owner hires someone to handle the books, he has to pay that person. A bookkeeper helps the business bottom line by diligently collecting accounts receivables, paying bills on time to prevent late fees, providing the owner with information to help him make sound financial business decisions and much more. The one thing bookkeeping does not do for a business is to directly increase the income of the business.