Accounting and bookkeeping services in Hyderabad > Blog > Outsourcing > Know the Importance of Bookkeeping for Small Business-A Detailed Guide

Bookkeeping is an understated yet crucial part of accounting and financial management. The role of bookkeeping is to record the financial transactions of a business. It is the stepping stone to making informed decisions regarding the sustainability and scalability of a business. That is why the former CEO and founder of Visa, Dee Ward Hock, said that making the right judgments when complete data and facts are available is not leadership- it is bookkeeping.

Small business is of different types ranging from sole proprietorship to limited liability partnerships. Also, an investment of not more than two crores in the service industry and five crores in the manufacturing sector qualifies as a small business. In general, it has less capital investment, few employees, and less revenue. So, the need for accountability for every penny earned and spent is an absolute necessity.

An efficient bookkeeping system sets the ball rolling for the accounting cycle. One complete accounting cycle consists of those financial activities that a business must follow repetitively for its smooth functioning. It includes identifying the transactions, recording them in a ledger, creating a trial balance, analyzing and adjusting the entries, and creating the statements for the management’s perusal. Of these, a bookkeeper is responsible for most of the activities.

Bookkeeping is thus a requisite rather than an option for the success of a small business. There are many benefits to having an orderly bookkeeping system.

Benefits of bookkeeping in small business

The renowned American historian and author Herbert J Muller once said that very few people know about Fra Luca Pacioli, the inventor of double-entry bookkeeping, which largely impacted human life. That is the impact of bookkeeping on business. Some of the prime benefits are listed below. 


  • Help the business to be tax-ready

One of the demanding tasks in accounting is taxation. The policies may change every year. The changes-additions, deletions, or amendments- are complicated unless the bookkeeping is flawless and up-to-date. There are many tax deductions and benefits provided to small businesses. Moreover, they get significant tax benefits as an incentive for digitalizing their financial transactions. So, bookkeeping helps in getting a business tax-ready. 

  • Aid the business in procuring loans and funds

The financial statements help give a better picture of whether a business is on the right track. That is how a probable investor or a bank will check to understand the business. The financial statements are a result of foolproof bookkeeping.

  • Better financial management

As mentioned earlier, bookkeeping helps in tracking expenses and revenue. It categorizes the different transactions, which helps to understand the overall financial nature of the business. For example, the category of office expenses includes the cost of paper and pens. Such categories make it easy to identify errors and rectify them. In short, efficient bookkeeping results in better financial management. 

  • Budgeting

Budgeting is an essential activity as it gives a financial plan for optimum use of resources for a defined period. In the earlier example of office expenses, a budget helps curb unnecessary expenditure. A thorough study of the payments and receipts, which is possible through bookkeeping, provides a basis for a superior budget. 



The downside of bookkeeping is that it is tedious and time-consuming. The responsibilities of a bookkeeper include identifying, recording, and maintaining financial records, reconciliation, tax, invoice and payroll management, etc. They establish the basis for efficient financial management.

How to implement a bookkeeping system

“Beware of small expenses. Even a slight leak can sink a ship.” These are the wise words of Benjamin Franklin, the founding father of the United States of America. It is a reminder of how essential bookkeeping is in a business. Still, not always, but there are certain constraints on small businesses like lack of talent or money. Here is a practical guide on setting up a bookkeeping system.

  • Maintain a separate business account

It is a cardinal rule to maintain a separate business account for multiple reasons. It is easier to identify, record, monitor transactions with a dedicated business account. Additionally, it gives more authenticity to the investors or loan providers.

  • Choose an appropriate bookkeeping system

In single-entry bookkeeping, the transaction is either a credit or a debit. While on the contrary, in double-entry bookkeeping, every transaction is a credit and a debit. It acts as a double check on every transaction. A small business at its early stage may choose the single-entry method, but as it grows, it is prudent to go for the double-entry system. 

  • Maintaining the records

The maintenance of records is a crucial task in bookkeeping. The choice is between manual, digital or both. The easy accessibility for reconciliation and tax purposes is the priority. In today’s digital era, the maintenance of records digitally is fast gaining acceptance as data retrieval is swifter.  

  • Tax, invoice, and payment solutions

The processing of data for tax purposes starts with an efficient bookkeeping system. Cash flow management in small businesses is crucial to their sustenance and further growth. The invoices must come with several payment options for ensuring a regular cash inflow. It is essential to make sure the payments are on time to avail of discounts and incentives.

Tax Invoive

  • Outsourcing bookkeeping process

Small businesses in all possibilities may face a crunch on money and talent. By outsourcing, they will have accessibility to the highly skilled talent pool with state-of-the-art technology at an affordable rate.  


Bookkeeping is an inevitable process in accounting. Without the arduous, time-consuming tasks of identifying and maintaining the records, it will be impossible to understand how the business is faring. So, rather than viewing bookkeeping as a task, it is best to make it into a work habit. The digital transformation has also positively influenced the bookkeeping process. It is beneficial to understand and adopt every positive change.

Outsourcing is a practical way to have a healthy bookkeeping habit. The expert team at Diligen is proud to provide the best possible solution and service for the bookkeeping tasks of small businesses.

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