Why Accurate Bookkeeping Is Important for Your Business
Bookkeeping for your business may inspire the same feelings as keeping a budget for your personal spending. As bothersome as it is to have to record every transaction, accurate bookkeeping is not optional when you’re running a business. Fortunately, you don’t have to do it alone. Your accountant can help you keep the books, and they’ll also help you prepare your financial statements.
Analyze Income & Expenses
Keeping your book involves keeping track of every single transaction. Knowing how much you earn and how much money you spend is important for getting an idea of your actual income and expenses. If you haven’t recorded the details so far, you’ll probably be surprised to learn how much your business spends on different things. It’s not uncommon for business owners to underestimate certain expenses while overestimating others. With bookkeeping, you don’t have to guess. And as you keep the books from year to year, you can do a better job at estimating future income and expenses even if your sales tend to fluctuate with the seasons.
Another important part of bookkeeping is doing the payroll. While you don’t have to withhold state taxes for your employees, Florida companies must still withhold federal income tax, Social Security, and Medicare payments. Employers must submit these withholdings along with the employer portion on a quarterly basis. You should take this obligation very seriously as the IRS will not give you any leeway when it comes to submitting payroll taxes in a timely manner.
Keep Track of Invoices
To stay in business, your company must be diligent about issuing invoices and collecting payment from customers. Your bookkeeper can handle both of these processes for you, although some companies may need additional staff to handle the receivables. The other side of the coin involves the invoices your company must pay to stay in business. From the utility company to your vendors and contractors, it’s important to stay on track of paying your invoices in a timely manner. Doing so can save you money on late fees, and it ensures that you have a good relationship with your suppliers.
Maintain Your Inventory
Whether you sell widgets, produce gadgets, or offer services – many businesses have raw materials, finished goods, and other items in their inventory they must keep track of. Through bookkeeping, your inventory stays up to date as new purchases and sales are recorded. While you’ll want to do an actual inventory count on a regular basis, you can estimate spoilage and other inventory loss by looking at your records from previous years. If you discover unusual inventory loss through your recordkeeping, you can take action to prevent it from happening again.
Maintain a General Ledger
In addition to keeping track of income and expenses, your bookkeeper maintains the general ledger for you. The general ledger shows you the balances in each of your asset and expense accounts. The general ledger can be used as a snapshot of your company’s financial health, but it’s also important to keep track of the accounts over time.
Prepare Financial Statements
Your financial records are a requirement for producing accurate financial statements. By recording every transaction and making necessary adjustments for the end of the fiscal year, your accountant generates a profit and loss statement, a balance sheet, and a statement of cash flows. These financial statements can give you a lot of information about your company and help you pinpoint areas for improvement.
Your profit and loss statement plays an important role when you file your income tax returns. Your balance sheet may be more interesting to a banker when you apply for a loan or an investor if you decide to expand your business. Finally, your statement of cash flows helps you determine the lifecycle of your company’s money.
Understand Financial Decisions
Proper bookkeeping is necessary to understand and make better financial decisions. Without knowing the details of your company’s finances, it’s difficult to evaluate opportunities for growth and investment. If you’re not sure how much money your company makes each month after all expenses have been paid, you can’t even take advantage of a sales opportunity and stock up when raw materials or goods are available at a discount.
If you have questions about your company’s finances, your accountant will be able to answer them as long as your books are accurate. Demian & Company, Certified Public Accountants, can keep your books up to date on a daily, weekly, or quarterly basis. Give us a call for more information!