The Importance of Bookkeeping
The Top 3 Reasons Why Bookkeeping is Vital to Small Business Success
According to the Bureau of Labor Statistics, 20% of small businesses fail in their first year, 30% of small businesses fail in their second year, and 50% of small businesses fail after five years in business.
While these statistics are alarming, there are simple methods to increase your odds of success.
One of the most common reasons businesses fail is the lack of financial planning.
So, how can your business plan for a better future? Bookkeeping
Bookkeeping refers to the process of organizing and storing your financial and accounting documents including ledgers, journals, financial statements, income tax records, and more.
Why Is Bookkeeping Important?
Bookkeeping is important because it allows you to maintain accurate financial records and provides a clear picture of your business’s overall health.
Here are the top 3 reasons why bookkeeping is vital to a business’s success.
- Improve Tax Reporting
Taxes can be a huge stressor for small businesses, but proper bookkeeping will reduce that stress greatly by allowing you to avoid audits, pay your taxes with ease, and achieve better deductions.
There are several different triggers that could cause an audit by the IRS including:
- High Deductions
- Using Round Numbers
- Reporting HIgher Income
However, proper bookkeeping will ensure that you have nothing to worry about.
When tax season approaches, are you prepared, or are you rummaging through files and loose papers on your desk?
With a bookkeeping process in place, you can have financial information ready for tax time. Instead of scrambling for receipts or invoices, all of your financial information is organized on one central system.
Without a good bookkeeping process, you could be missing out on important deductions, like home office expenses or supplies. With accurate and updated information, your Tax Accountant will be able to more easily identify cost savings for your business.
The IRS could also ask for records as proof of your deductions. You will want them to be handy. Disorganized books can prolong the auditing process and make your business more susceptible to fees and penalties.
Overall, proper processes will spare your tax adviser time and allow them time to give advice versus correcting mistakes or waiting for files.
- Better Cash Flow
In order to succeed, your business needs healthy cash flow which can be achieved through bookkeeping.
Proper bookkeeping allows you to analyze and manage your cash flow so you can see a more accurate picture of your business’ financial situation
The routine recording of revenues, expenses, liabilities, and receivables will allow you to track accounts payables and receivables. You can see when your customer and vendor invoices are paid or unpaid. As a business, you want to ensure that your customer invoices are being paid in a timely manner. Alternatively, paying your vendor invoices should be done in a timely manner, to avoid any late fees.
Overall, you will understand where your money is coming from and going to, allowing you to make adjustments as necessary.
- Performance Analysis
Bookkeeping allows you to generate accurate financial statements, which makes measuring your business’s performance easier.
Through financial data, you are able to isolate specific periods of time to measure a specific strategy’s performance. You can understand what business lines are working best, what products are underperforming, or if that additional employee is paying off.
There is truth in the numbers, but you can’t have an accurate picture without accurate numbers.
How to Get Started with Bookkeeping
Bookkeeping is vital to your success as a business owner. Disorganized books, inaccurate reporting, and financial uncertainty can lead to the road of failure.
If you’re unsure about where to start, allow qualified professionals to assist. We want to see you succeed.
Contact us today to get started!