Most people don't consider bookkeeping one of their favorite activities; however, maintaining good, clear, organized records will pay dividends. Even if you do nothing more than hand over the bills and checks to someone else, you need to understand how basic bookkeeping and financial statements work.

At a minimum, you need to be able to read your monthly statements and know how much you're worth, how much you owe, what your cash flow situation is, and what you have or need for inventory. You should also be monitoring income and expenses on a monthly, quarterly, and annual basis, to help you make the best decisions about the future of your business. Bookkeeping is how you get to your goals.

Good bookkeeping records are also essential when you're preparing your tax returns, because they ensure that you're deducting everything from your income that you can. They'll also be essential if you're ever audited by the government. You may not have to send your receipts in with your tax return, but the government always reserves the right to ask for the receipts later, to prove that you were entitled to make the expense deductions that you claimed.

Should you ever need to seek financing for the business, solid record keeping will be a strong point in your favor when your financial institution is making a decision. How you track your business finances reflects how well you run your business. No matter how outstanding your product is, poor bookkeeping can make you look like a bad risk.