Many MSMEs are so busy selling and serving customers that they forget to record their cash flow. Yet, this record-keeping isn’t just an administrative matter, but a crucial part of business strategy. Without clear data, making business decisions can be like a guessing game. Therefore, simple bookkeeping should be the minimum step business owners take to track performance and chart growth paths.
However, in today’s digital age, there’s a more practical, accurate, and efficient way. Want to know the secret? Read this article to the end!
Getting to Know Simple Bookkeeping
In accounting terms, simple bookkeeping is known as bookkeeping. However, it’s important to note that bookkeeping is different from accounting.
According to Coursera, bookkeeping is the process of recording financial transactions—both income and expenses—of a business. Previously, this process was often done manually in notebooks, but now many use digital software for faster and more accurate results.
Meanwhile, accounting is a continuation of this process. Accounting uses data from bookkeeping to prepare more comprehensive financial reports, such as balance sheets, income statements, and cash flow statements. These reports are useful for evaluating overall business performance and typically require advanced analytical skills to create and interpret the results.
Key Benefits of Simple Bookkeeping for MSMEs
While simple, well-organized and consistent bookkeeping can provide real benefits to MSMEs. Here are some of them.
1. Knowing and Evaluating Business Performance
By maintaining simple bookkeeping, business owners can systematically monitor cash flow, income, and expenses. In other words, as a business owner, you can clearly see whether your business is generating profits or experiencing losses. This data also serves as the basis for evaluating target achievement and making more strategic business decisions.
2. Facilitates the preparation of financial reports
Neat transaction records will make it easier for MSMEs to prepare financial reports. These reports can be used to identify business trends or inform important decision-making. Therefore, as mentioned earlier, bookkeeping is the first step in producing more comprehensive reports.
3. Manage Cash Flow, Accounts Payable, and Accounts Receivable Efficiently
With bookkeeping, you can record detailed cash inflows and outflows, including payments from customers (receivables) and obligations to suppliers (payables). This maintains a healthy cash flow and minimizes the risk of late payments or collections, while ensuring smooth operations.
4. Maintaining Operational and Payroll Order
Bookkeeping involves recording various routine activities, such as raw material purchases, payroll payments, and tax obligations. This helps ensure all business obligations are properly handled, improves business management structure, and reduces the risk of administrative errors.
5. Increase Business Professionalism and Credibility
A business with good bookkeeping looks more professional and is more likely to attract external trust, such as potential partners, investors, or financial institutions. This is crucial if MSMEs later need to apply for business loans or seek funding to expand their business.
Common Mistakes in MSME Bookkeeping
Although simple bookkeeping can be done without an accounting background or education, many MSMEs still make fundamental errors in their record-keeping. Here are some common mistakes you should pay attention to to ensure your business’s financial records remain accurate and useful.
1. Not separating personal and business finances
This is a common and often overlooked mistake. Mixing personal and business finances makes it difficult for MSMEs to assess whether their business is truly profitable or incurring losses. Therefore, separate accounts and transactions from the start to ensure more transparent and easier cash flow tracking.
2. Not Recording All Transactions
Another mistake is that many small business owners feel they don’t need to record small transactions like parking fees, meal allowances for deliveries, or discounts. Yet, these transactions, when aggregated, can have a significant impact on cash flow.
3. Delaying Recording
Transaction recording is often done once a week, or even once a month. As a result, many transactions are forgotten or missed. This habit results in inaccurate data and makes it difficult for business owners to evaluate business performance in real time.
4. Not Performing Reconciliation
Reconciliation is the process of matching bookkeeping records with actual account or cash transactions. Without regular reconciliation, discrepancies or errors can occur that go undetected. This is crucial for ensuring that financial data accurately reflects the actual situation.
5. Not Keeping Proof of Transactions
Shopping receipts, purchase notes, and supplier invoices are often thrown away or lost. Yet, this proof of transaction is crucial for future reference in case of discrepancies or audits. Therefore, keep proof of transactions securely, either in physical or digital form, for easy retrieval when needed.
After understanding the importance of bookkeeping and the common mistakes made, of course you need a more practical solution than manual recording which is prone to errors.
For a solution, you can use the Labamu app, which has numerous business management features that make everything more efficient. For example, with the
Starting now, with just one app, you can monitor your business performance, learn about your financial structure, and make more strategic decisions. Download the Labamu app from Google Play or the App Store. right now!
