You might have heard of an accountant having to “balance the books” every tax season, or at the end of every fiscal year. Individuals have to balance their own personal books as well to ensure all of their affairs are in order for the upcoming financial season. But what is balancing the books, exactly? And why is it so important?
What Is Balancing the Books?
If you are just starting out with your small business or franchise, you might be overwhelmed by the idea of having to keep track of your financial data in so many different ways. Balancing the books is something that can be automated with Indevia’s online accounting services, which offer a customizable platform to help you streamline your accounting needs.
First, keep reading to find out why balancing the books is one of the many fundamentals of accounting that you should know about.
The Act of Book Balancing
Book balancing in accounting describes every single financial transaction that your company performed during a standard accounting cycle. For your company, an accounting cycle may be one quarter, or it may be a fiscal year. Balanced books are then compared to the final bank statement of the cycle to ensure that the bank balance is equal to the amount qualified in your books.
Why Balance Books?
Balancing your books is one of the easiest ways to find out the financial status of your company right away. You can compare different types of expenses and transactions to see where your money is going, what you are paying for, and how much you are really putting into your own pocket at the end of the day.
Compare Assets with Liabilities
A thriving company will likely have a book showing that its assets are making more money than its small business liabilities. If the business continues to grow at this rate, it will also increase in value and equity, giving the business owner access to new tools for financing.
Consider New Growth Possibilities
Newly balanced books will give you key insight into whether or not your business is ready to expand. Compare this quarter’s books with last quarter’s or three quarters ago. How have things changed? Has there been a steady growth of income and assets? Is there enough cash to pay for expansion opportunities up front? By carefully measuring past growth, it is easier to capture accurate projections for the future.
Stay on Top of Trends
Looking over your financial activity of the past year, you’ll start to notice different ebbs and flows in the way your company makes money. During certain seasons, you might experience a boom in business, while some other months may be a little quieter in the books. By studying balanced books, you’ll be able to figure out how to take advantage of the trends that offer you a greater opportunity for profit.
Establish Your Grounding
Balanced books are the groundwork for your company’s financial health. It might not be the most exciting thing to look at, but it can help you make smarter and more informed decisions about future financial activities. You’ll know when to hire, when to promote, and when to make big purchases to help your company expand.
How to Get Started with Book Balancing
To set up an efficient book-balancing system, you can browse different accounting system options by deciding what platform you will use. Transitioning from manual accounting to depending on software and digital files can be overwhelming. Still, a highly organized system can be just the thing you need to get your financial records back on track.
Book balancing often goes hand in hand with creating a balance sheet, measuring your bank balance, and comparing assets. It’s an integral part of the annual or quarterly financial review process – and one that you can’t afford to miss out on.
Automate Your Book Balancing Systems with Indevia Today
Indevia offers all-in-one, customizable, automated accounting solutions for your small business or franchise. You can invest in annual or monthly bookkeeping services to get your company’s finances on the right track. Accurate and comprehensive books will set you up for a future of continued growth and upward motion for your business. Get in touch with our Indevia experts today and we will help you set up a customized accounting plan to suit all of your book-balancing needs.