Keeping track of sales, expenses and purchases is fundamental to the overall health and sustainability of your business. Effective bookkeeping produces the data you need to evaluate your current practices, anticipate challenges, and set attainable future goals.
But despite their proven importance, many business owners dread and avoid accounting tasks. In fact, 40% of surveyed entrepreneurs claim that bookkeeping is one the worst parts of running a business!
Wondering if it’s really worth the aggravation?
Here are 4 reminders of how effective bookkeeping is the cornerstone of small business success.
Keeping track of reimbursable expenses
A reliable system for tracking reimbursable expenses ensures you reap all the benefits you’re entitled to when filing your taxes. Expenditures sorted into categories, such as “rent”, “travel”, and “office supplies,” can be catalogued quite simply with online bookkeeping software.
Using a dedicated credit card for business expenses, and updating your records on a monthly basis, will put money back in your pocket come tax time. Using the latest technology will allow you to record your expenses on a daily basis.
Measuring profitability and planning for the future
In order to grow your business, you must be able to track and compare its finances from one year to the next.
In addition to reconciling the books and bank statements every month, effective bookkeeping generates records you can use to gain a comprehensive overview of your business. This data can help you:
- measure year over year profits;
- identify opportunities to cut costs;
- plan for major expenses (such as new office space, equipment, or staff); and
- develop data-based strategies for expansion.
Preparing for tax season
Few things are more stressful for business owners than scrambling to get poorly maintained financial records ready for tax season or an audit. In addition to the panic of last-minute filing, inaccurate or incomplete documentation can lead to serious penalties or fines.
In the United States alone, 40% of small businesses pay an average penalty of $845 per year for late or incorrect filings!
Save money and get peace of mind with sound bookkeeping. 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 tips: ask for help and embrace technology
Most entrepreneurs are passionate about developing new business ideas – not crunching numbers. Employing a professional bookkeeper or accountant, even on a part-time or as-needed basis, can help optimise your accounting and increase overall profitability.
There’s a good reason why 71% of small businesses outsource at least one accounting function to help manage tasks like payroll, closing the books each month, and managing accounts receivable.
Cloud computing (running applications online rather than on customers’ own property) and mobile accounting (using mobile devices) are a couple of the most important developments in information technology in the past 10 years. While Microsoft Excel remains the most used tool for many businesses for data entry and generating financial statements, most companies should buy special software that allows simplified data entry and guarantees the financial reports are accurate. This is especially beneficial for businesses because errors can lead to tax penalties or uninformed decision making.
It’s well worth it. Invest in effective bookkeeping and you’ll build a solid foundation for a resilient, forward-moving small business.