Bookkeeping is the first step in successful financial planning for any business, large or small. As many small business owners struggle to juggle numerous tasks, bookkeeping tasks often fall by the wayside. However, accurate bookkeeping can mean the difference between staying in business and closing down due to financial problems.
Poor financial management is the most common reason for small business failures. According to Investopedia, the four most common reasons why small businesses fail are a lack of sufficient capital, poor management, inadequate planning, and cash flow problems. Without sound bookkeeping and accounting practices in place, it is far too common for small business owners to fail to understand their true financial state until it’s too late.
Bookkeeping and accounting serve the same general purpose, but there are some distinct differences. Bookkeeping involves accurately recording all of the financial transactions of a business, including receipts, payments, purchases, and sales. Accounting is the process of interpreting financial data in order to give advice about a company’s current and future business. Accurate bookkeeping makes financial analysis possible.
How Meticulous Bookkeeping Can Help
Here are some advantages of accurate bookkeeping for small businesses.
Saves Time
When you don’t make bookkeeping a priority, you wind up having to scramble to catch up every time you need accurate books for a financial transaction. The time lost to this cleanup process costs your business more than just extra time. The more you rush, the more likely you are to make mistakes. If you make any serious mistakes in your rush to balance the books, you could wind up facing bigger problems in the future.
Improves Cash Flow
Cash flow is the money that is moving (flowing) in and out of your business on a monthly basis. The National Federation of Independent Business reports that inadequate cash flow is a top reason for new business failure and even well-established businesses can suffer from cash flow problems.
Poor bookkeeping practices can easily mask cash flow problems. When income and expenses are properly organized and up-to-date, you’ll know the exact amount of funds you have available at any given time.
Avoids Late Fees and Penalties
Accurate bookkeeping helps you avoid late fees and other penalties. Whether you’re taking advantage of an early payment discount from a supplier or avoiding interest on late payments, proper bookkeeping helps you track payables and save money.
A common (and costly) issue with late payments happens when payroll remittances are paid late. Having a proper bookkeeping system in place can make sure you make these payments on time and avoid expensive late fees and penalties.
Improves Business Planning
The long-term success of your business depends on planning for both short and long-term growth. Your business plan outlines how you plan to operate your business over the next month, quarter, year, or even longer.
Without accurate and timely financial information, it’s impossible to develop a sound business plan. Accurate financial information allows you to track your progress and make adjustments to meet your business goals.
Access to Financing
With your books in order, you’ll be ready to apply for financing when you need it. In fact, a better awareness of your business finances will help you determine if you need financing and what type of loan makes the most sense.
Obtaining a loan is difficult if you don’t have the right financial information available. Lenders will look at your credit score, cash flow history, financial projections, business plans, profit and loss statements, and more. The best way to secure financing is by having your financial records in order before you begin the process.
Accurate Tax Planning and Preparation
The taxation process can be hectic and time consuming for small business owners. If good bookkeeping procedures are not in place, then it becomes even more difficult to file accurate and timely tax returns.
Many business owners miss out on all of the deductions and tax credits available to them because of poor recordkeeping. Inaccurately filed tax returns can lead to penalties and audits. An accurate bookkeeping system can help small business owners avoid these errors and penalties.
Less Stress
Small business owners have a lot to think about; from hiring the right employees, marketing, increasing sales, and more. Running a business is less stressful when you have a firm grasp on your financial situation.
Timely and up-to-date books give you a clear picture of your income, expenses, profits and cash flow, allowing you to operate your business knowing that you have enough cash on hand to support daily operations and drive long-term growth. And knowing that your business is in compliance with tax rules and regulations provides peace of mind.
Outsource Your Bookkeeping When It Becomes Too Much to Handle
Small business owners take on a lot of tasks. If you're finding it difficult to stay on top of important bookkeeping tasks, then outsourcing makes sense. Outsourcing is cost effective because you likely only need to pay for a few hours of work each month rather than paying for a full-time employee.
A professional bookkeeper may only need 2-4 hours to process one month’s work of bank transactions, finalize a bank reconciliation and produce a set of updated financial statements. When you outsource your bookkeeping, you know the work is being done accurately and in a timely manner, allowing you to focus on what you do best - running your business.
At Nolan Accounting Center, we pride ourselves on building strong relationships focused on success. The professional staff at Nolan Accounting Center provides a full range of financial services designed to meet your business needs. Because our firm is relatively small, our clients benefit by receiving personalized service.
If you’re looking for a blend of personal service and expertise, Nolan Accounting Center is here to serve you. We provide accounting, tax preparation, bookkeeping and payroll services to small business owners in Southeast Wisconsin. We look forward to working with you to meet your financial goals.