Why Your Business Requires Diligent Bookkeeping
Some people dislike bookkeeping just as much as another dreaded B-word: budgeting. While it’s true that keeping up with the finances isn’t fun for everyone, there are a lot of good reasons why business owners must concern themselves with it. The good news is that you don’t have to do the work yourself to gain the benefits of it.
Keep a Record of Every Transaction
You may not think that it’s necessary to write down every single transaction, but it’s good practice for your business. By recording all your transactions, it’s easier to match your receipts and statements to your earnings and expenses. When you keep a record, looking back at a previous charge also becomes as simple as clicking a few buttons.
You should go through your transactions periodically, even if you’re not the one entering them. This ensures that you’re informed about your company’s earnings and expenses. It also helps you spot unusual expenses and allows you to track them down and verify them, if necessary.
Maximize Tax Deductions
The IRS doesn’t really care how you keep your books. But if you want to deduct your business expenses, you must keep the receipts to back up your claims in case of an audit. Diligent bookkeeping can help you at tax time, because it allows you to find possible deductions quickly. Without keeping the books, you’d be forced to go through every receipt individually to determine whether that’s deductible or not. And when it’s time for an audit, it will be even more difficult to figure out the logic behind your return. With proper bookkeeping, you can even match your transactions with your receipts and keep them all in digital easy-to-find format.
It’s easy to make mistakes. If you’re human, you have made one. Fortunately, bookkeeping can help you catch those mistakes. If you’ve overpaid an invoice because you looked at the past-due amount when you wrote the check, your bookkeeper will let you know. In that case, your vendor might let you deduct that amount on your next invoice if you bring it up. You can also prevent more serious mistakes by keeping up with your books, such as forgetting to pay employment taxes.
Head Off Cash Flow Problems
To run a successful business, you must be in control of your cash flow. It’s not just important to generate revenues for the future, but you must have enough funds to pay your employees and vendors. Proper bookkeeping can alert you to these payment cycles and help you preserve your cash when it’s needed. Every business must spend money to keep going, but a good bookkeeper can help you identify ways to ensure your company remains a going concern. In a way, the flow of cash is like the pulse of your business.
For example, part of bookkeeping is collecting payments for outstanding invoices. If you negotiate shorter payment terms with your vendors, you can avoid a financial crunch. You can also take advantage of invoice factoring to raise cash without going into debt. Whatever you decide to do, there is a solution. But you won’t be actively looking for one until you discover that cash flow may be a problem, and you have your bookkeeper to thank for that.
Prevent Late Payments
Proper bookkeeping will keep you on track with paying your bills. This can help you prevent late payments and the associated late fees. One late fee may not be that bothersome, but if you always pay late, those penalties add up. Also, if you pay your vendors on time, they’re more likely to help you when you need assistance. Just think of your current customers how always pay as soon as you send the invoice. If they wanted it, you would probably give them preferential treatment, too.
Understand Your Finances
The most important job of bookkeeping is to help you understand your financial situation. With your bookkeeper’s help, you can get a good overview of your company’s finances and drill down to the details. This ensures that you’re not caught off guard with irregular expenses, and it helps you plan for the future. Keeping an eye on where the money goes makes good business sense. After all, if you don’t earn more than you spend, you’re not keeping your company afloat.
If you don’t understand all the categories or expenses your bookkeeper records, ask questions. You don’t have to be a financial experts to get a good overview of how your business is doing.