Why Bookkeeping Is Essential For Small Business And Startups

October 18, 2019

5 min read

Know why the best bookkeeping consultants in India have a common opinion that bookkeeping is essential for small businesses.


Ketan Sharma

Consultant, Gurgaon

Why Bookkeeping Is Essential For Small Business And Startups


Starting a new business requires the business owner to have the understanding and experience of performing multi-disciplinary tasks. One of those tasks is bookkeeping which helps the startup owners in understanding the financial condition of the business and makes accounting much easier. 

What Is Bookkeeping?

Bookkeeping is the process of recording, categorising and reporting the financial data of a business in a systematic manner. Bookkeeping keeps a  track of the financial transactions of the business including sales, purchases, bank transactions, invoices records, etc. Bookkeeping involves keeping a track of the startup’s assets as well to have complete insights on the depreciation or appreciation of the business assets. 

Approaches To Bookkeeping

There are two basic approaches to bookkeeping for startups: 

  1. Cash Basis: Transactions are recorded when cash is exchanged for any sale or purchase in-hand. 

  2. Accrual Basis: Transactions are recorded when the revenue and expenses are accrued over a period of time. 

Importance Of Bookkeeping For Small Businesses And Startups

The best bookkeeping consultants in India have a common opinion that bookkeeping is essential for small businesses and new startups to keep the management, investors and the government authorities informed about the transactional activities of the business.

The financial data gathered is required by management to form a financial strategy for the business;  investors need to be informed of the activities which utilise the funds given to the business and how much the startup is getting back from sales; the financial statements are one of the key documents to be submitted with the MCA that requires error-free bookkeeping and accounting.

The other ways bookkeeping proves out to be essential for a startup include:

Tax Filing

Every year, businesses are required to submit their tax returns with the tax authorities and efficient bookkeeping makes it easier for the startup to calculate its tax liability.  This, in turn, helps the business in avoiding unwanted penalties and scrutiny from the tax department. Bookkeeping and accounting consultants consider bookkeeping as the basic foundation of efficiently fulfilling a business’s tax compliance requirements including GST return filing, TDS filing, etc.

Business Productivity

Small businesses and startups need to determine their productivity and profitability to understand the channels of high revenue. Financial data of the business gathered from bookkeeping provides the estimates with which business can get the forecast associated with financial growth and expansion. This information is also required by the investors, lenders and banks for lending money to the business.

Cash Flow Management

Business owners need to have an understanding of their expenditure and revenue to manage their cash flow efficiently. However, this understanding can be achieved only when all the financial information is available to them. Bookkeeping enables business owners in gathering this information and segregating the profitable products or services of the business from the non-profitable ones. The information so gathered can help the management in making crucial financial decisions in advance. 

Financial Forecast

The financial plan of business includes monthly expenses, expected revenue and expenditure and financial report. This information is gathered gradually from bookkeeping and affirms where the business stands. Business owners require this information to present their financial strategy to investors and stakeholders.

ALSO READ: Basics Of Startup Accounting

Difference Between Accounting And Bookkeeping

Bookkeeping and accounting are two functions which are extremely important for every business organization. In the simplest of terms, bookkeeping is responsible for the recording of financial transactions whereas accounting is responsible for interpreting, classifying, analyzing, reporting, and summarizing the financial data. Bookkeeping provides the data through which the financial statements are created, whereas accounting is the process during which financial statements of a business are prepared.

Startups may seek guidance from bookkeeping and accounting consultants who can offer extensive knowledge, education and experience that can help the business owners in setting up and managing their bookkeeping operations. SeekWiser can connect businesses with the best accounting consultants in India for their bookkeeping and accounting requirements.