If you own a business, you know the importance of bookkeeping. But, do you know the difference between business and personal bookkeeping? Wondering if you need to do both? Bookkeeping isn’t as straightforward as many people think it is. This guide describes the difference between business bookkeeping and personal bookkeeping.
Here’s what you need to know!
The Difference Between Business Bookkeeping and Personal Bookkeeping
Business bookkeeping involves tracking revenue, debt, expenses, and assets related to your business. This information is then turned into financial statements, which allows you to better understand your cash flow. Effective business bookkeeping enables business owners to secure loans, make smart financial decisions, and file taxes.
You can choose to manage your business’ books on your own, use an online bookkeeper platform, or outsource the work to a professional.
Why Business Bookkeeping Is Important
- Business bookkeeping provides in-depth insight into your business’ financial standing. With bookkeeping, you can see where you’re spending money, how much taxes you owe this year, and whether you qualify for a business loan.
- Bookkeeping is also needed to produce financial statements. These statements show how your business is doing financially. Without accurate bookkeeping, these statements are impossible to create.
- Business owners also need bookkeeping to file taxes. Remember that personal and business tax filing is different. To file business taxes, you need to have detailed books that provide all your information.
- Last but not least, business bookkeeping is needed if you ever want to get a loan. If you’re looking to get money from a lender or investor, you’ll need to show financial statements with accurate information.
On the other hand, personal bookkeeping involves staying on top of your own personal finances. Look at personal bookkeeping as budgeting and expense management. You can use it to:
- Determine your net worth
- Create a healthier budget
- Decide how and where to spend your money
Personal bookkeeping can also come in handy when you are planning to buy a home or retire.
Managing your personal books allows you to track your personal spending. You can easily determine if you have a budget that works for your financial goals and lifestyle needs. Personal bookkeeping also makes it easier to get a loan or to pay down debt.
What Kind of Bookkeeping Do you Need?
No matter the type of small business you own, some form of bookkeeping is a must. Keeping track using an Excel spreadsheet is better than nothing at all. There are also all sorts of basic accounting software and budgeting tools that you can use to keep tabs on your business’ finances.
Now that you know the difference between business bookkeeping and personal bookkeeping, you’re better positioned to take care of your financial health inside and outside of the business world. If you’re unsure what you should be tracking, consult with a professional bookkeeper or a CPA for guidance. Visit Satty, Levine & Ciacco, CPAs, P.C. website today to get started!