Bookkeeping is an essential part of running a business, because it helps you maintain your financial records and make sure they are accurate. While it should be common knowledge that bookkeeping is essential – for your business and from the law’s perspective – many businesses fail to implement it properly.
One of the most common reasons for business failure is the lack of proper accounting procedures. Without managing your accounts, your business is running blindly. But why is it so important, you ask? Let us discuss some key reasons.
Bookkeeping helps you with your budgeting. When your income and expenses are organized correctly and laid out in front of you, you can quickly review your resources and costs. This way, you can quickly assess what your finances will look like in the future and make business decisions accordingly.
Usually, businesses have to file taxes annually. Waiting for this time of the year to get your paperwork together and calculate your tax liability is not just stressful, but it can also cause dire errors that could lead to you getting in trouble with the tax authorities. Bookkeeping is not only crucial for your business’s taxes, but also for your personal tax returns. If you own a business, your income is coming from your company, but if you don’t know how much your business has earned you would, in turn, also not know how much you earned.
Being organized is an integral part of running a business. There are so many facets to running a business; you should be able to find information regarding any aspect of it at any time.
Many people are interested in the company’s finances – the IRS, your employees, your investors, your debtors, even your customers. To be able to provide these people with the information they need, you should know precisely where it is so you can access it immediately. In some cases, you could even get in trouble for not being able to do so in a timely manner. Always remember that the IRS has the power to penalize your business, while investors and lenders could put a stop to your cash inflows.
Organization is an essential part of bookkeeping. Keeping your finances recorded makes it easier to access it when needed.
How do you determine how your business is doing? One of the critical aspects of analyzing your business performance is to look at your finances. By doing this, you can determine whether you are making sufficient revenue, whether you are operating on losses or profits, and whether you have experienced growth. You can also compare which parts of your business are doing well and which are not.
By analyzing and evaluating your business’s performance, you can work on its strengths and weaknesses. Without proper bookkeeping, you would not be able to do so accurately, because the basis of this evaluation is your company’s finances.
Investors have a stake in your business. After all, it is their money that you are carrying out your operations on. Unsurprisingly, they would be concerned about whether the money they have invested is being used properly.
The potential of the business and prospects, profits, and losses are all important to them because it will determine whether they want to continue investing or not. The information to be reported to them in the form of charts and graphs can only be presented accurately if you have been on top of your bookkeeping.
In fact, bookkeeping is not just for current investors, but also for future investors. Potential investors will look over your past finances before they decide to support you financially, and they would most likely prefer a business that has organized finances over one that doesn’t.
With a clear picture of your business finances – how, where, and on what you spend your money, how much you owe in debts, how much you could expect to receive from others – you are able to keep Receiving payment for your products or services can keep your cash flows balanced and moving.
Tracking this cash flow is vital for any business, and it’s only possible to do so if you are taking the appropriate steps to make sure all your bookkeeping is accurate and timely. Many businesses fail because of cash flow problems, and proper accounting is the only solution to this.
Focus on Strategy
As a business owner, you want to grow and develop your business to its best extent to be able to make the most out of it. Bookkeeping is a tool that brings you closer to your short and long-term goals by letting you make business decisions accurately. Using the information in your books, you can focus on strategy and track results using the same information.
All businesses undergo an audit at some point or the other. Messy books will not only prolong the process, but they could also incur penalties or fees from the IRS if they feel that your books are too disorganized. If your books are not up to date, this may also result in penalties, which you would undoubtedly want to avoid.
When an audit is coming up, you would want to make your books as neat as possible, but this could be a difficult task to do at the last moment – it would be much easier if you keep your books organized and up to date at all times.
Required by Law
And of course, even if you could somehow find a way around all the benefits of bookkeeping, as mentioned earlier – the law still requires you to keep financial records. Depending on the structure of your company, and the legal implications that result, you could be expected to keep your business finances separate from your personal finances. Not doing so could even lead to your business’s closure.
BryteBridge prides itself on helping small businesses with their everyday operation, including providing bookkeeping services. Contact us today to speak with a business consultant and get started! 877-857-9002 or firstname.lastname@example.org.