Keeping track of your expenses, purchases, sales and earnings is fundamental to the overall sustainability of your business. Effective bookkeeping produces the correct data you need to plan for the future, while also evaluating current practices.
However many business owners dread and avoid accounting tasks, despite their proven importance. In fact, a 2015 survey saw that 40% of entrepreneurs found bookkeeping to be one the worst parts of running a business!
But is it really worth the aggravation?
Here are four reminders as to why bookkeeping is the foundation for the success of small businesses.
Keeping track of reimbursable expenses
When filing your taxes, having a reliable system for tracking expenses will ensure you reap all the benefits you’re entitled to. If your expenses are sorted into categories, they can be catalogued quite simply with online bookkeeping software.
By updating your accounting records monthly and using a credit card dedicated solely to business expenses, this will help in putting money back in your pocket at tax time.
Measuring profitability and planning for the future
In order to grow your business, you must be able to keep track of and compare finances from one year to the next.
Effective bookkeeping generates records you can use to gain a comprehensive overview of your business, in addition to reconciling the books and bank statements every month. This data can help you:
- measure your profits year to year;
- identify areas to reduce costs;
- plan for large upcoming expenses (such as new office space, equipment, or staff); and
- develop strategies for expansion as a result of obtained data.
Preparing for tax season
There are few things more stressful for business owners than rushing to gather poorly maintained financial documents for tax season. While the panic can often lead to rushed, last minute filing this can have serious detriments to your business. Any inaccurate or incomplete documentation can result in heavy penalties, fines and even audits.
Therefore sound bookkeeping not only gives you peace of mind, but also saves you money in the process. You’ll be assured of compliance with regulations, and will receive a reliable estimate of amounts owing long before your tax bill is due.
Final tip: ask for help
Most entrepreneurs passions lie in developing new business ideas – not crunching numbers. By employing a professional bookkeeper, even on a part-time or as-needed basis, you will optimise your accounting and increase overall profitability.
There’s a good reason many small businesses outsource at least one accounting function to help manage tasks like payroll, closing the books each month, and managing accounts receivable.
It’s well worth it. You’ll be able to build a solid foundation for a resilient, forward-moving small business, all by investing in effective bookkeeping.