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What's Bookkeeping and Accounting and Why Are They Important?

Many small business owners have difficulty understanding the differences between bookkeeping and accounting. This can lead to confusion about whether, and why, a company needs these services, especially when starting out.
What are the Differences?

Bookkeeping involves the day-to-day recording of financial transactions, such as sales and purchases, then organising and storing the data. This data is what the accountant then analyses to create financial statements that help track the health of the business. A startup owner may be able to perform basic bookkeeping tasks, especially in the beginning, using convenient software such as Receipt Bank and Xero. These apps help simplify bookkeeping and are a great time-saver for administrators. However, accounting requires a higher level of analysis and expertise than many business owners have. For most companies, especially startups, hiring an accountant is a crucial part of successfully managing and growing their business, and they can quickly become a finance partner to a growing business.

Why is Bookkeeping Important?

Simply put, a business needs to keep track of the money it is making and spending. Without meticulously documenting this information, it is impossible to know how well a business is doing or whether it is meeting its financial goals. Furthermore, an accountant needs this data in order to create complete financial statements as well as to prepare taxes.

Do We Really Need an Accountant?

Absolutely! Accounting provides a broad view of the financial health of a business by creating thorough and accurate financial statements. A qualified accountant knows how to interpret the financial data of a company and provide helpful advice for growing the business. As a startup expands and seeks out funding, it becomes essential to prove the company is financially sound. Well-prepared financial statements demonstrate that a company's finances are in order and that it can take on debt or equity.