Many small business owners bootstrap their businesses. A small business owner does not realize how not keeping a good record of their business' finances is affecting their profits and revenues. This is princippaly true when it comes to bookkeeping; as it's one of the main reasons for small businesses going out of business. This includes overlooking financial mismanagement.
If you're a first-time entrepreneur, you might be wondering: What exactly is bookkeeping and how it differs from accounting?
Bookkeeping is defined as the activity or occupation of keeping records of the financial affairs of a business. While accounting, on the other hand, is defined as the action or process of keeping financial accounts. In short, bookkeeping lives under the accounting umbrella, but it's one of the most crucial parts of accounting and also one of the most detail oriented.
Why is bookkeeping so crucial?
1. Provides Better Financial Analytics and Management
An important aspect is managing Cash Flow. Delaying invoices, not following up with customer payments and delaying payments to your suppliers will bring your company down. To avoid this, bookkeeping can help in systematizing all of these processes by making sure you're always keeping up with your business tasks on a timely matter.
2. Keeps the IRS Happy and Your Tax Obligations Clean
In order to file your annual tax obligations, bookkeeping helps you keep track on the necessary information and documentation. No more last minute running around to find missing invoices or trying to recall what your business expenses were for the year. With a methodized and organized Balance Sheet , Cash Flow and Profit & Loss reports, your tax expert can focus on advising instead of adjusting entries in your financial statements.
3. Simplifies Reporting for Investors
Reporting to your investors is essential on providing insight on the financial status of your business. And the best part is that with bookkeeping, you no longer have to worry about gathering this information! Statistics can be easily presented in the form of graphs, charts, and lists of financial data can be easily acquired. Having this information at hand will also heavily impact your ability to present plans and proposals to your investors.
4. Creates Your Business Blueprint
You only need two things: the Balance Sheet and Profit & Loss report. These two documents will allow you to check your business' health and if it's headed in the right direction. Uncover the reality of your business to decide what things and processes need to pivot. Planning for your business will instantly become much more accurate and effective.
5. Ensures Legal Financial Documentation
Have you ever felt uneasy when hearing the word "Audit"? Say: "Never again!"
Since bookkeeping helps in keeping all of your records organized, you will never have to fear to retrieve information again when the time comes to being audited.
"That moment when your business strives!"
In conclusion, A & C Bookkeeping Services can assure you that you've at least learned one thing from this information: Bookkeeping is not a luxury, it is a vital investment; a fundamental element for ensuring your business' long-term success. Having proper bookkeeping can make or break your business; it can avoid you from going bankrupt, or it can also help you increase your profits.
Do not take this aspect of your business lightly and make sure to hire a competent bookkeeper that will care about you, your company's goals and can complement your business strategies.
Disclaimer: This blog is for information purposes only and is not intended to provide investing, accounting, tax or legal advice and should not be relied upon.