No one ever said bookkeeping was the most exciting part of owning a business. But it’s one of the most important, and it’s worth your time to learn the basics, if only for the health and success of your business.
Here are seven reasons why good bookkeeping matters for business:
1. Gain Insights Into Your Business
As the saying goes, you can’t manage what you don’t measure. The same is true of your business—if you don’t track your financials, you won’t know how your business is performing. Are you making a profit? How much revenue are you bringing in? How’s the cash flow looking? When do you owe those vendors?
Bookkeeping will give you the answers to these questions, helping you make informed decisions about your business. Without organized bookkeeping, you won’t fully understand how your business is functioning from a financial perspective. And without full knowledge, you’ll never have full control.
2. Manage Taxes as You Go
Taxes are a fact of life for businesses, but that doesn’t mean they have to be a headache. Staying on top of your bookkeeping helps you manage your taxes throughout the year rather than scrambling to get everything together at tax time.
When you have a good handle on your finances, it’s easy to estimate your taxes owed and make quarterly tax payments to the government. It will save you from owing a large sum come April 15.
Paying as you go also helps reduce your risk of an audit, as filing late or lack of documentation raises red flags when the IRS reviews your payments and returns.
Calculating and managing an entire year’s worth of revenue and expenses before the tax deadline isn’t impossible, but it’s not easy. Keeping track of receipts and invoices weekly or monthly makes it an easier task to take on and saves you loads of time in April.
Additionally, being organized with your bookkeeping makes it easier to take advantage of any business tax deductions you may be eligible for but which you might not have time to uncover if the tax filing deadline is pressing down.
Finally, if you ever have to go through an audit, the IRS will request documentation for your deductions, so keeping good records is essential. It means hanging on to receipts, invoices, and other documentation related to your business income and expenses.
3. Keep Organized Records
If you have a system for categorizing your bookkeeping entries, it will be much easier to find the information you need when you need it.
Organization is vital for two reasons: first, if you get audited, the IRS will want to see the documentation for your entries; second, you’ll be able to pull up files, invoices, receipts of sale, etc., as you need them.
Suppose a customer asks a question about a discrepancy on their account months prior. You’ll be able to quickly access the document in question to provide whatever proof is needed.
Categorizing expenses by type (e.g., advertising, office supplies, travel) will also help you track where your money is going and identify areas where you can cut back. Bookkeeping allows you to make more informed decisions about your business spending.
4. Stay Legally Compliant
Businesses must adhere to several laws and regulations, many of them related to financial reporting. The law requires business owners to keep financial records for their company on file.
For taxes, the IRS requires business tax returns for at least three years, but they can still come after you for up to six years if you fail to report certain income, so holding on to documents that far back is wise.
The IRS also requires you to keep all employment tax records for a minimum of 4 years.
5. Attract and Report to Investors With Ease
If you’re looking for investors or partners, they’ll want to see proof that your business is doing well financially. Having all your financial information readily available—both current and historical—will make it much easier to put together a convincing case for why someone should invest in your business.
And if you do bring on investors, they’ll also need to see regular reports on how you’re using their money and what kind of return they should expect. Once again, good bookkeeping is handy, providing the data you need to generate accurate reports.
6. Budget for the Future
Putting together a budget is simpler when you have all of your financial information in one place. When you track your actual income and expenses against your budgeted amounts, you make better decisions about where to allocate your resources.
If the books show you’re consistently spending more in a particular area than you’d planned, adjust your budget accordingly. Perhaps you need to set aside more money each month to cover travel expenses. Or maybe you find that it’s best to cut back on advertising spending and divert those funds to another area.
The bottom line is that bookkeeping gives you the information you need to make informed decisions about the future of your business finances—decisions that can help improve your bottom line.
7. Maintain Peace of Mind
We understand that not everyone loves numbers, but good bookkeeping is essential to keeping your business on track. Without it, you’ll constantly worry about whether or not you’re making sound financial decisions.
By staying organized and up-to-date with your bookkeeping, you’ll have peace of mind knowing your finances are in good shape. Peace of mind knowing your books are in good shape frees up your time and energy to focus on other aspects of your business, like growing your customer base or developing new products and services.
Need Bookkeeping Help for Your Business? Give Us a Call
If you’re not sure where to start with bookkeeping for your business, or if you need help staying organized and compliant, we can help. Our team of experts is here to answer any questions and provide the support you need to succeed. Contact MI Tax CPA today to learn more!
