Often small businesses prepare their bookkeeping purely to give to their accountant at the end of their tax year. This means that they are missing out on vital information to help make business decisions throughout the year.
- Are You Charging Enough? Without examining the costs involved in creating your product or providing your service how do you know you are covering your costs? Without regular bookkeeping, you may not find out what products or services are either making or losing you money until over a year after the start of your year. By keeping on top of your costs you will be able to adjust your fees accordingly and ensure you are making a profit.
- Are You Able To Get Funded? That moment you realize you need additional capital, but your books are 6 months behind and you already have so much to do. The worst right? Keeping up with your bookkeeping on a weekly or monthly basis can save you the pain of having to do several months of cleanup at once, which usually results in errors and potentially flawed data. Investors will be impressed by a small business that knows where every penny has been spent or received. Ignorance of accurate recordkeeping is usually a trait found among small businesses right after beginning operation.
- Managing Cash Flow Cash flow management is the key to the survival of a small business. Outside of looking at the bank balance every day, how can you know what your cash is doing? Regular bookkeeping ensures that you know which customers have paid and can chase late payments. By keeping up with your bank transactions regularly, you can accurately monitor your cash flow and calculate important metrics. You will know how much money you have coming in and will be able to budget for paying your suppliers, staff, and yourself. You will also be able to budget for larger investments.
- Taxes Knowing how much profit you have made enables you to budget for your tax bill at the end of the year. If your books are up to date you can accurately calculate any tax due and track payments when they go out.
- Business Planning By keeping up with the finances of your business you can monitor your plans and spot any issues before they escalate. By doing your finances once a year you may not be so lucky. Fundamental bookkeeping is not only the key to understanding your business, but it’s also being able to make proactive decisions to get back on track as changes come about.
- Measuring Profitability and other Key Performance Indicators (KPIs) Without tracking your transactions and proper bookkeeping, your measure of profitability could be skewed. Without knowing how much money has been spent in each expense category, you can’t measure any area of your business accurately. A trusted advisor will have trouble assisting you with business decisions unless they see a complete set of financials.
- Buyout Potential Is your business on the radar of being bought out by investors or an interested party? Having accurate financials will allow you to calculate your firm’s value in your industry. They will also give peace of mind to your investors who have made you a solid offer. It will offer assurances to help the buyout process be completed with the confidence of both sides. Having incomplete books will impede both your ability to calculate an accurate firm’s value and lose your buyer’s confidence.
