You are a small business owner, or are wanting to start your own small business, and are facing the challenge of what to do about your bookkeeping. What system do you use? Do you do it all yourself, or outsource your bookkeeping? Is it even necessary to have a good bookkeeping system at all? As long as I know what is in the bank, I am good to go?
Here are 7 good reasons why you should have a good, accurate bookkeeping system. Rather spend time now at the beginning getting your bookkeeping needs in order and set up, and save yourself a whole lot of difficulty and heartache later.
- Keep up to Date on your Business Financial Pulse
A good bookkeeping system ensures that you are always up to date with what is happening in your business, and it gives you real-time insight to your business financial health. A good system lets you see at a glance your total income, expenses, bills due, and much more.
A good bookkeeping system allows you to have access to relevant up-to-date financial information whenever you want it. This will empower you to make more informed decisions in your business concerning expansion, challenges, upcoming payments, and will give you a greater peace of mind about how you are managing your business.
2. Helps You Prepare and Conquer the Tax Filing Season
Tax Filing Season is always a stressful time for any business owner. As small business owners, we all have obligations to accurately report and fulfil our tax obligations. A good bookkeeping system allows you to have accurate records of everything that has happened in your business, so that you can comfortably file your annual tax returns knowing that you don’t have to worry about whether you have declared all your income, claimed the correct and appropriate expenses, and you will also have the confidence that anything the tax man may enquire about is readily available.
This also helps you to take advantage of applying the correct deductions in order to reduce your tax liability each year. Failing to accurately account for your financial position in your small business may result in legal and financial trouble with the tax authorities.
These are some of the common tax returns you may be faced with:
- Annual Company Tax Return
- VAT Returns (if you are VAT registered)
- Payroll and Employee Tax returns (if you have employees)
- Provisional Tax Returns
3. Empowers Your Decision Making Ability
Keeping a good bookkeeping system allows your decision-making ability to be more strategic and well-informed. Informed decision-making is vital to the success of any business!
You will find that you have a much greater confidence in your pricing, budgeting and cost-saving strategies if you can rely on accurate, up-to-date financial information for your business.
4. Contributes to Your Business Growth
Keeping a good, up-to-date bookkeeping system assists you if you want to apply for a business loan, or want your bank to finance any acquisitions or growth opportunities, stock, machinery, etc. The prospective lender will want to see your latest financial statements and financial records so that they can make an informed decision about your application. Also, your up-to-date system will give the lender more confidence in you and your business as they see your commitment to accuracy and efficiency in keeping your business financial matters up-to-date.
Investors, lenders and banks usually look for a number of success indicators when considering loaning money to small businesses, including:
Transparency: A business is more appealing if it is evident that you are committed to financial transparency as evidenced by the detail and accuracy of your financial records. This grows the confidence of the lender that their investment in your small business will provide a good return on their investment.
- Performance: Lenders always examine your financial statements to assess the performance of your business. This includes:
- Profit and loss statements (sometimes called income statements)
- Balance Sheets
- Cash Flow Statements
Consistent, well-kept financial records showcase the financial stability of your business.
- Payment History: Reviewing the payment history of a business with suppliers an creditors is a common task for lenders. Always paying your bills on time, and keeping up with bill payments is a good indicator of your commitment to the success of your business, and also enhances your creditworthiness.
- Tax Compliance: Lenders almost always need an assurance that your business is compliant with tax and legal obligations. Complete, up-to-date and accurate financial records demonstrate this compliance.
5. Helps Manage Your Cash Flow
Keeping an eye on your income and expenses through a good bookkeeping system helps you manage your cash flow, and assists you in ensuring that you have enough cash in the bank to meet all your day-to-day requirements. This is crucial for the stability and survival of your small business. It also helps you service any debt obligations, and is good for supplier relationships as well. You will be able to avoid potential crisis issues early, and also gives you the potential to build a financial cushion for any unforeseen emergencies that may arise.
Cash flow management also helps you understand how efficiently your business converts sales into cash, which can enhance the profitability of your business.
6. Helps with your budgeting and future plans for profitability
A good bookkeeping system also helps you to create a good and accurate budget for your business, which assists and empowers your business to stay profitable into the future. With a budget you can:
- Control Expenses: Setting spending limits identifies and reduces excessive expenditure, a vital step to the success of your small business.
- Set Goals: Your budget is a good place to reflect and implement both short-term and long-term goals in revenue increase and also decreasing expenses, which both improve profitability.
- Allocate Resources: Allocating resources such as capital and materials helps ensure money is directed to areas that will generate the most profitability.
- Measure Performance: Comparing actual financial results to planned budgets helps you to identify areas that need your attention, and allows you to make timely adjustments in your business.
7. Supports Your Long-Term Success
A good and accurate bookkeeping system is one of the foundation blocks for the long-term success of your small business. Having accurate, up-to-date and readily available financial information at your fingertips will give you the peace of mind and confidence in knowing that you have an accurate financial compass to help you steer your small business to future success.
Tips for long term small business success:
Begin with the right bookkeeping system for your small business that is able to expand with your growing needs.
Organise: Lost paperwork is the downfall of many small businesses. Make sure that your paperwork (both physical and digital) is organised and filed in an effective, easy-to-find manner.
Consistency: Regularly enter all the necessary data into you bookkeeping system, once a month, once a week. Don’t fall behind on this.
Accurately Invoice: This allows you to keep track of all your potential revenue, and also allows you to follow up on any outstanding revenue with clients.
Capture All Expenses: This enables you to keep tabs on any possible deductions, which can increase your profitability. Capture ALL expenses, no matter how small, even if you paid cash, or from your personal account.
Keep Accounts Receivable Low: Constantly follow up with clients who are late in paying what they owe to you. The timely payment of invoices from clients to you helps your cash flow immensely.
Stay Informed: Always be aware and up-to-date with the financial happenings of your small business. Keep your eyes on reports and results.
Outsource Your Bookkeeping Function: If you find that your bookkeeping is overwhelming you, then hire a good bookkeeping service. Remember, putting your bookkeeping of until ‘another day’ is very dangerous! We often find with clients that tomorrow never comes, which is often the death knoll for many small businesses.
If you are thinking of outsourcing your bookkeeping requirements, check out our Services page to see how we can help you, or contact us today. We will be happy to meet with you to discuss and help plan your future success.
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