Bookkeeping—it’s what no business owner wants to spend their nights and weekends doing.
However, we cannot understate the importance of proper bookkeeping when it comes to your small business. Without accurate and consistent financial records, you might not be able to plan and maintain consistent cash flow as time goes on. And while some business owners choose to do their own bookkeeping, most make the wise decision to work with a third-party financial consultant to help them avoid potential damaging mistakes.
Good financial recordkeeping also allows you to set up your business for future growth. It allows you to identify where you may be spending too much, how profitable each product/service you offer is and enables you to invest your time more wisely.
What tasks are included in bookkeeping?
Generally speaking, bookkeeping is the process of recording all of a business’s financial transactions and any financial events that occur in your company. A bookkeeper maintains careful records of all sales, purchases, receipts, payments and earnings to ensure all the money that leaves and comes into the business is accounted for.
Bookkeeping consultants also track checks and receipts and keep them organized, filing them as soon as they take place. All data about financial transactions goes into specific books and/or software, arranged chronologically. While this level of in-depth tracking of finances might seem like overkill to some small business owners, it is essential to the long-term health and viability of any company.
Why good bookkeeping is so vital
This all may sound a little mundane, but the information a bookkeeping consultant tracks helps your accountant produce accurate financial reports and statements. It also helps your accountant gain a clear picture of the financial health of your business. In analyzing these records, an accountant can quickly see how much money you are making and compare it to the amount you are spending—giving you a clear picture of your profits and margins.
Without proper bookkeeping, you would not be able to say for certain if you are making enough to cover all your business expenses, or if you are performing up to your standards. If you have kept solid books and discover your company is where it should be, you can determine where you will be able to cut costs or increase earnings to help boost its overall performance.
In addition, if you ever want to take out a loan to secure additional funding for your business, the bank or lender will require complete financial data that shows your business to be in good standing. They will ask for copies of financial statements, cash flow budgets and a variety of other information that sound bookkeeping makes easy to access.
Finally, cohesive bookkeeping can help you avoid the often-feared Internal Revenue Service audits of your business. Audits are commonly triggered by discrepancies in your tax returns. Keeping up-to-date with your bookkeeping will help prevent this major disruption.
By working with a third-party bookkeeping consultant, you are able to guarantee a clear picture of the financial health of your company without having to put the time into the actual day-to-day obligations of bookkeeping yourself. The peace of mind you’ll receive is certainly worth the investment—and you’ll be happy to free yourself of what can become a huge burden over time.