7 Reasons Why Bookkeeping is Essential for Your Small Business
Bookkeeping is defined as "the activity or occupation of keeping records of the financial affairs of a business.” This financial information can be used by business owners to make smart financial decisions for their business.
As your business starts to grow, you might start to realize you don’t have as much time as you used to, to do your bookkeeping. You may be tempted to put a hold on keeping up with your finances but eventually, overdue bookkeeping can result in inaccurate reporting, overpaying on income taxes, and undue stress.
Here are 7 reasons why bookkeeping is essential for your small business.
1. You Save on Income Taxes
2. Stay Compliant with Legal Requirements
3. Reporting
4. Better Decision Making
5. Budgeting and Planning
6. Hit Business Targets
7. Stay Organized
1. You Save on Income Taxes
Business taxes are stressful for a lot of business owners, but they don’t have to be! While most businesses use CPAs or Enrolled Agents to file their taxes, if you have inaccurate records, your taxable income might be too high causing you to overpay on your taxes. A consistent bookkeeping workflow will provide your accountant with records and data they need to file your taxes easily.
2. Stay Compliant with Legal Requirements
Besides, submitting tax returns, the IRS also requires businesses to maintain accurate business records. This is their way of ensuring that businesses are paying their taxes and conducting business honorably. A consistent bookkeeping workflow will ensure that your small business has up-to-date records that are in line with current laws and regulations, and that your taxable income isn’t too low.
3. Reporting
Possibly the most valuable byproduct of bookkeeping is reporting. It is always important for a small business owner to be aware of the financial status of their company so they can make good business decisions and communicate their business’ success to potential investors like friends and family. Bookkeeping services for your small business makes the reporting process seamless allowing you to easily generate graphs, charts, and lists from your records, and share this data with investors and banks.
4. Better Decision Making
Business owners make many decisions every single day. Some of these decisions might include whether or not a business needs to apply for loans, hire more employees, increase their pricing, or apply for grants. These are big decisions and if you are in the dark about how your business is doing financially, these decisions can have a negative impact on the growth of your small business. Bookkeeping allows you to access data that you can use to analyze and then make the right decisions that will scale your business.
5. Budgeting and Planning
Bookkeeping will also help business owners with financial planning and budgeting. As a business owner, you need to be able to use your historical bookkeeping records to review the past performance of your business and to draft a concrete budget that will serve as a future roadmap for your growth. With accurate records, you’ll be able to notice areas where you are overspending and then put cost-saving measures in place. Having a professional bookkeeper to keep an eye on your finances and help you stay on track, is always a plus.
6. Hit Business Targets
The main goal of every business is to grow, and the way to grow is to set goals and reach them. This growth can only be realized when there is available data to analyze and compare against your set budgets and targets. If you have no reliable financial records, you can’t be sure if you are reaching your business goals. With accurate bookkeeping for your small business, you can clearly establish business goals and make sure you are hitting your target goal every time.
7. Stay Organized
Deadlines seem to come out of nowhere, and when you are behind on your bookkeeping, it can be especially difficult to generate data you need when you need it. From time to time, you’ll find that you urgently need to find specific financial information. When organized records are not available, you might have to spend a lot of time gathering and compiling this information, which can cause you to miss deadlines. With organized records, you’ll will know exactly where to find any financial information at any time.
What Next?
Now you know why bookkeeping is so essential to your small business’ success, why not get started now? Here at Lightning Bookkeeping we specialize in helping small business owners set up and implement bookkeeping workflows that are specific to their business and field, and make sure they have the tools they need to make educated business decisions.
