Small businesses form the backbone of the US economy, with 99.9% of US businesses being small businesses. In fact, 47.5% of the US workforce is employed by small businesses. So if you’re a small business owner, we appreciate all the good you’re doing for our great country.
Running a small business is hard enough — there are a million things you have to keep track of, and bookkeeping often falls to the bottom of the list. But neglecting your bookkeeping for small businesses can be a huge mistake, leading to missed opportunities and even financial disaster.
In some cases, you may even be in bad books with Uncle Sam, which is bad for business. In today’s post, we’ll be discussing the importance of bookkeeping for small businesses, and why you should consider hiring a bookkeeper to help you stay organized.
What Is Bookkeeping?
Bookkeeping is the process of recording and storing financial transactions. Transactions are typically recorded in a bookkeeping system, which can be either paper-based or electronic. The bookkeeper is responsible for ensuring that all transactions are accurately recorded and stored.
There are two main types of bookkeeping: single-entry bookkeeping and double-entry bookkeeping. Single-entry bookkeeping is a simpler system, in which each transaction is only recorded once.
Double-entry bookkeeping is a more complex system, in which each transaction is recorded twice, once as a debit and once as a credit.
Most businesses use double-entry bookkeeping, as it provides a more accurate record of financial transactions. Bookkeeping is typically done on a monthly or quarterly basis, although some businesses may do it more frequently.
At the end of each period, the bookkeeper will prepare financial statements, such as an income statement or balance sheet, that business owners and managers can use to make informed decisions about their businesses.
What Is the Importance of Bookkeeping for Small Businesses?
Bookkeeping is integral to the proper financial organization of your small business. Here are a few reasons why proper bookkeeping is important for your small business.
Crucial for Proper Budgeting
Budgeting is one of the most important aspects of financial management for small businesses. An accurate and up-to-date bookkeeping system is essential for effective budgeting.
Bookkeeping can help you track your actual income and expenses, as well as forecast your future income and expenses. This information is crucial for creating an accurate budget that will allow you to make informed decisions about where to allocate your resources.
Without bookkeeping, it would be very difficult, if not impossible, to create an effective budget for your small business.
Ensures Proper Financial Organization
Bookkeeping helps to ensure proper financial organization to keep your business afloat.
As your business grows, so does the number of financial transactions you make every day. If these transactions are not properly recorded and stored, it can quickly become difficult to keep track of them all, leading to financial disaster.
A bookkeeping system can help you stay organized and on top of your finances. It’ll allow you to easily track your income and expenses, as well as see where your money is going. This information is crucial for making informed decisions about your business’s finances.
It’ll also help prepare your financial information for investors, lenders, the IRS, and customers. Bookkeeping helps ensure proper financial organization and prepares your business for future growth.
Engenders Well-Informed Decision-Making
Bookkeeping provides business owners and managers with the information they need to make informed decisions about their businesses. Financial statements prepared by bookkeepers can give you insights into your business’s financial health, as well as where your money is being spent.
This information is crucial for making sound decisions about how to grow your business and where to allocate your resources. Bookkeeping can help you make informed decisions about your business, thus putting your business on the right path to success.
Helps Maximize Cash Flow
Did you know that 82% of small businesses fail because of cash flow issues? Without enough money coming in, your business is doomed to fail. Thankfully, proper bookkeeping can help sidestep any looming failure because of cash flow issues.
Bookkeeping can help you track your income and expenses, as well as forecast your future cash flow.
This information is crucial for maximizing your business’s cash flow and keeping it afloat. Bookkeepers can also help you find ways to reduce your expenses and improve your profitability.
By maximizing your cash flow and profits, bookkeeping can help ensure the long-term success of your small business.
Helps With Tax Preparation
Proper bookkeeping is also important for tax preparation. Bookkeepers can help you track your income and expenses, as well as prepare your financial statements. This ensures you always file your taxes accurately and on time.
Bookkeepers can also help you take advantage of any tax deductions or credits you may be eligible for. By hiring bookkeepers for small businesses, you can save a lot of money come tax time.
Ensures Complete Government Compliance
All businesses, regardless of size, must comply with various government regulations that apply to them. Bookkeeping can help ensure your business is always in compliance with the said regulations.
Bookkeepers can help you track your income and expenses, as well as prepare your financial statements. This information is crucial for ensuring your business is compliant with all applicable laws and regulations.
By staying compliant, you can avoid any penalties or fines that may be imposed on your business. Bookkeeping helps ensure complete government compliance and keeps your business operations seamless.
Helps With Financial Analysis
Bookkeeping can also help with financial analysis. Financial statements prepared by bookkeepers can give you insights into your business’s financial health, as well as where your money is being spent.
This information is crucial for making sound decisions about what direction to take your business and where to allocate your resources. Bookkeeping can help you make informed decisions about your business, thus putting your business on the right path to success.
Crucial for Reporting to Investors and Lenders
If you’re seeking investment or a loan for your business, bookkeeping is crucial. Financial statements prepared by bookkeepers can give investors and lenders insights into your business’s financial situation.
This information is crucial for securing the funding you need to grow your business. Bookkeeping can help you get the funding you need to take your business to the next level.
Helps You Track profits and Growth
Bookkeeping helps you track your business’s profitability and growth. It gives you a clear look at your business cycles and how much profit you make in each. From there, you can use the information to chart the best way forward for your business.
You can decide whether to seek more investors, expand, or recruit more staff. This will help bring your business close to its goals, which leads to the next point.
Clarifies Your Business’s Targets
Your business’s growth potential can be stymied by poor financial records.
Without accurate and up-to-date financial info, it’s near impossible for your business to set targets. That’s why bookkeeping for small businesses is non-optional if you want to have a thriving business.
Bookkeeping can help you track your business’s progress and set achievable targets. This information is crucial for making sound decisions about the future of your business.
Helps Plan Your Business’s Future
Bookkeepers can help you develop a long-term vision for your business. They can help you set goals and objectives, as well as chart a path to achieving them. This information is crucial for making sound decisions about the future of your business.
By having a clear plan, you can avoid any costly mistakes that could set your business back. Bookkeeping can help you plan your business’s future and avoid any pitfalls along the way.
Crucial for Tax Preparation
Bookkeeping is also crucial for tax preparation. By tracking your income and expenses, bookkeepers can help you take advantage of any tax deductions or credits you may be eligible for.
By hiring bookkeepers for small businesses, you can save a lot of money come tax time. They also help keep you from getting into any run-ins with the taxman.
Lets You Learn About the Process
One perk about hiring a bookkeeper for your small business is that you get to learn in the process. If you want to eventually do your bookkeeping in-house, bookkeepers can train you and your staff on the ins and outs of bookkeeping.
They can help you set up your bookkeeping system and show you how to use it. This information is crucial for keeping your business’s finances in order.
Gives You Peace of Mind
Running a small business is super stressful, but bookkeeping helps give small business owners peace of mind. By knowing that your finances are in good hands, you can focus on running your business. This information is crucial for keeping your business running smoothly.
Bookkeepers can help take the stress out of managing your finances. They can help you keep track of your money and make sure your finances are in order. This information is crucial for keeping your business running smoothly.
How to Do Bookkeeping for Small Businesses?
Most small business owners choose to hire bookkeepers for their bookkeeping. Others choose to do it by themselves. Either way, the bookkeeping process will look something like this.
Creating a Business Account. The first step in bookkeeping for small businesses is creating a business account. This account will be used to track your income and expenses. It also helps keep your personal and business finances separate.
Track Business Expenses. The simplest way to track business expenses is by using a business credit card. This will help keep all of your business expenses will be in one place. A bookkeeping software solution can also help track your expenses.
Maintain Everyday Records. Proper bookkeeping means maintaining accurate daily records. Failing to do so only makes your bookkeeping more difficult. The best way to keep accurate records is by using bookkeeping software.
This will help you stay organized and on top of your bookkeeping.
Keep an Audit Trail. An audit trail is a record of all the transactions that have taken place in your business. This information is crucial for bookkeeping because it helps you retrace your financial activities. It also keeps your invoices in order to maintain cash flow.
Track Your Business’s Spending. The bookkeeping process also includes tracking your business’s spending. As mentioned earlier, using a business credit card is one of the best ways to do just that.
You can also try categorizing your bills into types of expenses. For instance, you can have operational costs, monthly costs, and miscellaneous costs. This will help give you a good idea of your business’s expenses and whether you’re spending money the right way.
Don’t Forget Your Accounts Receivables. Accounts receivables is the money that is owed to your business. This could be from customers who haven’t paid their invoices yet or from loans you’ve taken out.
Keeping track of your accounts receivables helps you maintain a good cash flow. It’s also important for budgeting and ensuring proper financial organization. Ensure your accounts receivable are paid on time and follow up on overdue invoices.
Set Money Aside for Taxes. Setting money aside for taxes helps avoid any surprises come tax season. It’s common for business owners to get caught up in their daily business expenses and forget about taxes. This automatically puts them in bad books with the IRS.
Bookkeeping services for small businesses can help you stay on top of your taxes and ensure that you’re setting money aside for them.
Consider bookkeeping experts like Finvisor to help keep your books in check.
Keep an Eye on Tax Deadlines. There’s no point in budgeting for taxes when you keep missing tax deadlines. One of the most important aspects of bookkeeping is keeping track of tax deadlines. This will help you avoid any penalties or interest charges.
Taxes can be a pain, but bookkeeping can help make them a little bit easier by always keeping you on the right.
Proper Bookkeeping for Your Business’s Success
Bookkeeping for small businesses is more of a necessity than a luxury. Without it, your business is heading for financial disaster. So embrace bookkeeping before it’s too late for your business.
Remember, you don’t have to do it on your own. You can hire a bookkeeping service and leave the heavy-lifting to them. Alternatively, you can hire a permanent bookkeeper; whatever works for you.
Had enough? If not, check out the other posts on the site for more informative reads.