Proper bookkeeping is an essential element for any size small business – larger or smaller. Unfortunately, many entrepreneurs often neglect this task in favor of growing and running their business, which is understandable. After all, you’re a business owner – not a bookkeeper.
However, it’s vital that you have the right bookkeeping processes and procedures in place. “Why?” You may ask. Here are 6 reasons why proper bookkeeping is vital for your small business.
- It can help you determine if your company is profitable. By meticulously recording all of your company’s earnings, sales, purchases, receipts and payments, you’ll know where your company stands financially at all times. If you don’t know how much money is coming in or going out on a monthly or annual basis, how can you know if you’re making a profit or not? Proper bookkeeping helps you decide what you need to do to stay profitable. For example, you may need to increase the prices for your products or services. Or, you may need to reduce expenses.
- Proper bookkeeping helps you manage your company’s expenses. When you know how much money you’re spending on expenses, you can make smart decisions. Maybe, you need to cut costs by eliminating certain expenditures. Or, maybe, you should find a cheaper alternative for recurring monthly expenses.
- It helps you avoid any unpleasant financial problems. Once you’ve identified what your company’s financial picture is, you can avoid having customers who owe you money, or you owing your suppliers money, or, in general, bankrupting the company due to the lack of finances.
- Proper bookkeeping helps you plan for the future. When you have a clear idea about your company finances, it becomes easier to make plans for the future of your small business. You’ll know whether you can hire more employees, replace aging equipment, or plan for future expansion. Without good bookkeeping records, it’s harder to make these financial decisions.
- It is required if you’re applying for financing. If you need to get a business loan, your bank will want to look at your financial data to determine if your business is in good financial standing before they will loan you money.
- Proper bookkeeping helps you file your annual taxes. When you keep good financial records, you (or your accountant) won’t have to scramble at tax time to gather all the necessary documents to complete your tax return. Plus, if the IRS ever audits your business, you’ll be prepared with the needed documents to answer their questions.
At The Payroll Department in Brownsburg, Indiana, we understand how important proper bookkeeping is for your small business. We can help you maintain accurate and thorough financial records, so you can avoid costly financial mistakes and can continue to do what you do best – running and growing your small business. Contact The Payroll Department today for more information on our bookkeeping services.
-Ariane of The Payroll Department Blog Team