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As a small business owner, having bookkeeping skills under your belt makes a tremendous difference in your overall operations. While many people hear the term and immediately think numbers and reports, bookkeeping goes a lot deeper into what you are doing, how you are doing, and what you should or should not do now and in the future. Bookkeeping helps you forecast and plan for what’s coming, keep track of what you owe the government, and position you for growth.
Even if you’re planning on outsourcing this task, having some knowledge in this area keeps you in the loop on your company’s financials. One of the main objectives in bookkeeping is to keep your money straight and provide a snapshot of how the company is doing at a moment’s notice. When your books aren’t in order, it’s easy for your business to become unorganized, which results in time and a loss in revenue.
Why Bookkeeping is important
Here are several reasons why bookkeeping is important:
In everyday life, if you want to know where your money goes and how much you spend, you keep a budget. The same thing holds true for business. Your budget helps track your income, expenses, and plan for future purchases and investments.
Businesses must file taxes every year, but there are some taxes that must be paid every quarter. The last thing you want is to either not pay your quarterly taxes because you don’t know how much you must pay, or you don’t have your financials to file a timely yearly return. When you own a business, the amount you get paid is from business revenue. That means you must know how your business did to file a personal tax return. Having your revenue and expenses in one place makes things a lot easier.
In business, organization is key. Your financial records should be easy to access for investors, taxes, employees, and lenders if you are interested in obtaining a business loan. If your financials aren’t in order, how will that make your business look? The organization of your finances helps showcase how much you care about the maintenance of your business.
Having an accessible snapshot of your financials provides the best data for analysis to see how well your business is performing (or not). You’ll be able to fully assess what needs improvement and what should be eliminated to cut costs.
Consider bookkeeping part of the roadmap for your business that can’t perform at optimal levels because the wrong decisions are being made.
When you know where you want to go and can see where your finances currently are, you can plan for the future. Setting goals and objectives on different initiatives and how much they will cost you plays a huge role in building the company. When preparing for the next budget, you’ll be able to see what categories need to be added, or which areas need more money.
If you have partners or investors, annual reports and information for the shareholders can’t be avoided. Investors want to see how their money is being spent and when you expect revenues to increase enough to recoup some of their costs.
When you know how your money is being spent, you can have better management of it. Bookkeeping shows you what’s owed from clients, as well as what and whom you owe. With a bigger picture, you’ll be able to set payment schedule dates to remember to pay.
Think of your company as a project. That means everything falling under the project must be accounted for. The reports and analyses provided from accurate bookkeeping help pinpoint trends, gain insight on when your company makes the most money, when the best time for new products and launches is, and when you are in a good position to scale.
• Being Strategic
It’s always a good thing to be strategic about your business and what you wish to accomplish. Good bookkeeping puts this front and center with the financials laying the foundation in reaching your goals. This also helps when realigning those goals based on performance.
You must keep a record of all money earned and spent as a requirement of the law. In most cases, your financials should be recorded separately from your personal assets. This helps the IRS understand what you are doing and how much you should be paying in taxes. The last thing you want is to be audited and you don’t have a record of what comes in and out. This could result in costly fees you don’t want. The best thing you can do is have your financials in order in the event you are audited to make things easier for the IRS and yourself.
• Greater Satisfaction
When your company is doing well, you may not think too much about your financials, but this can make or break your company. Take the time to know and understand the principles of accounting, as they are needed to generate real-time reports.
Bookkeeping is important because it gives you insight on how and when you want to scale. Having an accounting outsource firm that can work with you during every step of your transition. You always want to work with software that is accessible to everyone. The software should have compatibility to operate in the cloud and has al the features you’ve been looking for.
Overall, bookkeeping provides a foundation for the entire organization that can safely operate in the right now and look to the future.
While these are all solid reasons why bookkeeping is important, saving yourself time and money are incentives you don’t want to ignore. You can either handle it yourself, hire an in-house bookkeeper, or outsource this task.
Using the right software to help get you on the right track is also key in helping support good bookkeeping. There are a few options on the market that can handle the tasks you need. The pricing and features are similar, with some more robust than others. The object is to get bookkeeping software that makes things easy. These are the most widely used platforms:
QuickBooks has been around for many years and is the go-to for most companies. This company has a hard-wired software or you can handle your books in the cloud. One of the most attractive things about QuickBooks is it’s the ability to scale with you. From simple tasks to more advanced features, you’ll find it all with QuickBooks as it integrates with other apps and handles payroll tasks. There are also different versions based on industry, as well as a self-employed version. It is used by small businesses as well as large enterprises. There are limitations to the online version of the software. It only allows up to 25 users at a time and three firms.
FreshBooks is another software with three different payment tiers. Cloud-based, users can quickly and easily access data through their app. Clients can ask questions and the user can respond. The company has also added double-entry accounting.
Xero is another software that can help your business scale. It has three tiers of service, but there are unlimited users included. There is a certification program to help understand the software.
Zoho is known for the value it brings to the end-user. With four tiers of service, Zoho offers a CRM (customer relationship manager) and productivity apps to streamline operations. Cloud-based, users can automate workflows within the system, which could help track and collect money.
Wave is absolutely free and is widely used by small business owners who are just getting started with keeping their financials in order. This company is owned by H&R Block and has unlimited invoices and all reminders are automated.
Setting short-term financial goals
Some businesses need guidance on setting goals that align with the need for bookkeeping. Revenue goals that are clearly defined creates incentive and drive to make things happen. What are some goals that may be covered?
• Comparative Analysis of Competitors
Research is always good when considering what needs to be done for your business. Having your financials ready can help pinpoint what they do that is very popular and realize you may need to add money to your marketing budget to go compete.
• Debt Management
Bookkeeping can keep you on track, especially dealing with debt management. Every business should be evaluating what their financials look like as it relates to their debt. Having a snapshot of what’s outstanding and finding ways to cut down costs relies on the reports from the bookkeeper.
• Cash Flow Control
Every business wants to be able to control its cash flow and hide from the taxman. Many companies have issues with managing their cash flow because it’s so fluid. Recording cash received and distributed must be done to remain in compliance, but forces you to take a good, long look at what could happen if the cash came in, it wasn’t recorded, and you became audited.
• Reducing Costs
The reports generated from bookkeeping help in determining any opportunities or partnerships you may have overlooked. Additionally, you will be able to realize any additional savings when looking at your expenses.
The Bottom Line
It is very easy to get caught up in running other areas of the business and neglecting financial tracking. The last thing you want is to have a bunch of receipts for reimbursement or to find out which payment methods was used. Incorrect financials affect the company as a whole and can be detrimental to its growth. When invoices are not handled correctly, a ripple effect occurs.
Bookkeeping helps provide financial stability for your company, whether one structure or multiple locations. It is not easy to keep track of things when there are so many moving parts, but having a good bookkeeping program and hiring a professional can keep you on track.
If you’re just starting out or have been in business for a while and never considered putting your financials in order, it’s time to put the plan in motion. These are all factors in determining why bookkeeping is important, and what to do to get prepared. Getting training on any software you decide to use is one of the best things you can do for yourself and your company.
Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.