Experienced bookkeepers or bookkeeping services are financial watchdogs that don’t mind asking the right questions. They may even get in your face if the need arises to keep your business from dipping into the red.
Entrepreneurs know bookkeeping is a necessary component of their financial operation but they don’t always know the ways it helps their small business succeed. Keep reading this post to find out how proper bookkeeping can be a lifesaver.
What is bookkeeping?
Financial bookkeeping involves recording transactions whether manually or using online accounting software and storing and retrieving data. By keeping pace with sound accounting practices, you can record invoices sent to clients, record payments from customers, pay suppliers, and perform other financial functions.
Because your accounting records are used by accountants to prepare your business tax returns, many times bookkeepers and accountants work collaboratively throughout the year. Doing so enables an accountant to help manage cash flow or answer questions you have about your balance sheet and income statement.
When keeping accurate records, you can wrap up your end-of-year financial records by making debits and credits to record depreciation and make other adjusting entries before the next accounting period begins.
10 Ways Bookkeeping Helps Your Small Business
Bookkeeping is a vital area of any type of business. If you still have your doubts about it, we’re sharing with you 10 ways bookkeeping will help your small business:
1. Monitor payroll expenditures
When your bookkeeping system includes payroll services, you can print checks for employees, withholdings, and payroll taxes. Automated systems post to general ledger accounts once you print checks and maintain running balances so you can prepare year-end W-2s for employees.
2. Keep tabs on tax deadlines
An important bookkeeping policy is to make sure you make tax payments to the IRS on time when you make self-employment estimated taxes. There are also deadlines to pay withheld social security and medicare taxes, Federal income tax withholding, and Federal unemployment tax.
Depending on your industry, you may owe excise taxes on certain products you manufacture or sell, the equipment you use, or payments you receive for services.
If you don’t pay taxes to the IRS on time, you could face huge fines and penalties.
3. Track tax deductions
When you keep a year’s worth of records, you can spot common tax deductions to lower your taxable income and thereby decrease any income tax your business may owe.
This is one occasion when hiring an accountant and a bookkeeper makes sense because they keep up to date on tax laws and deductions.
With good bookkeeping practices in place, you have records to back up any tax deductions you take.
4. Review your budget
Bookkeeping allows you to review your income and expenses weekly or monthly to ensure you stay on budget. Otherwise, you won’t have any idea in which areas of your operation you overspend. Plus, you can make adjustments to spending or adjust your marketing campaign to increase revenue.
By adhering to a system of consistent accounting practices, your records identify financial areas that you can shore up to ward off a financial crisis.
5. Free up your time
When you know how money goes out and comes in, you can dedicate more time to grow your business.
With good bookkeeping, you’ll know if your business is on course to have money to purchase equipment, apply for a business loan, or transfer surplus funds to other accounts. You’ll be able to have more time to spend with customers, mentor employees about an upcoming new product or service or take a well-earned vacation.
Essentially, you won’t need to juggle as many tasks at once.
6. Take the pressure off of you
Assigning bookkeeping duties to one person takes the pressure off of you to micro-manage finances.
The bookkeeper can look for ways to cut costs, make recommendations to streamline accounting or find apps to improve efficiency. They become a valuable participant in your business’s success and enable you to concentrate on taking your business to the next level.
7. Stay compliant with the IRS
Should your business be audited, you’ll have records to substantiate purchases and deductions. You can provide a paper trail of canceled checks, receipts, and other data to support transactions.
8. Prepare for the worst scenario
Perhaps a business partner goes rogue and pays a fee to a nonexistent enterprise.
Maybe an accountant embezzles money from your company or explains away tax delinquency notices because they never sent the money to the government.
When you use accounting software and have a good bookkeeper, you can restrict manual payments, require two signatures on checks, and track expenditures through your business and banking records.
9. Monitor accounts receivable balances
When you have slow-paying customers, your cash on hand may not cover expenses.
You can follow up on overdue accounts to work out payment plans or other arrangements with customers. When a customer invoice is uncollectible, you may be able to write off the amount as a bad debt expense.
Be sure to check with your tax professional for advice.
10. Pay suppliers on time
Your business could come to a screeching halt if you don’t pay for materials and services on time. You can schedule when to pay accounts payable based on prearranged terms with suppliers. If you make it a habit to not pay on time, vendors won’t sell materials to you or may require cash on delivery.
Use bookkeeping to your business’s advantage.
Not only can you implement these ways to help your small business become successful but you can use bookkeeping to increase profits. You’ll know which expenses increase for your product or service and discover ways to improve your financial process to save money.
If your books are 3-6 months behind, you won’t know when you need funding for more working capital. Neither will you be in a position to analyze profitability or calculate your business’s value should you want to sell it.
When you use the bookkeeping strategies mentioned above, you can focus on what’s most important—business growth. Unless you stay on top of your financial status, most businesses stagnate or stall out altogether. As you can see, bookkeeping not only helps you run your business but keeps you on course to succeed.
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