Bookkeeping has been a practice used for centuries. The accountancy of goods received and traded has always been necessary to keep track of stock coming in and out from storage. Bookkeeping has changed over the years to include new laws and practices to draw a more precise chart of gains and losses. It takes the combined effort of education and technology to show an accurate picture.
Why do we spend so much time gathering, counting, adding and subtracting a company's income and expenses? Here are the major reasons why bookkeeping will always be an important factor in the life of a business.
1. Is your Checkbook Balanced?
Bookkeeping is not unlike keeping a checkbook balanced. If you do not write down deposits and subtract payments, you will never know the bottom line. We all know what happens when more money is spent than is received. Bookkeeping allows you to keep track of how much money you have on hand.
2. It is the Law
Taxes are required to be paid by everyone. Businesses are expected to keep good records of all transactions in order to be traceable. Preparing tax reports are required by federal, state and local governments. When certain forms are not filled out and sent in on time, red flags go off that you are trying to avoid sharing your records. Audits may be scheduled, and penalties can be charged or worse.
3. Why Cash flow is Important
Cash flow is the net amount of money that flows in and out of your business account each day. For instance, you collect $50 from selling goods, that is money coming in. If you pay $30 to the electric company, this is money going out. If you have more money going out than coming in, you cannot survive. Good bookkeeping practices can show when bills are due and how much money is needed to pay them.
4. Planning for the Future
A historical look at past bookkeeping figures can prepare you for what is typical in your business. An example may be stocking summer items. T-shirts may have been your best seller in year's past. While you may want to move on to other items, it is hard to turn you back on a winner. Keep those T-shirt sales rolling in and place profits in reserve for a new line for the future.
5. Answering to Investors
Starting a business is never easy and rounding up investors can be a convenient way to get your company up and running. However, nothing is free and reporting to investors on a regular basis is usually expected. Without a good bookkeeping system in place, you will have no way of showing them how good or how bad you are doing. Their level of trust can become compromised, and future endeavors threatened.
6. Filing Taxes
Hiring an accountant when yearly taxes become due is a way of life. But an accountant is only as good as the records that you provide. Without being able to provide good records and proof that certain expenses were made, an accountant cannot provide a proper analysis of your business. You may feel that the cost of doing business is more than your accountant shows you, but they need the true figures. This could end up costing you thousands of dollars.
7. Staying Confident and Positive
When you are not clear on how your business is doing, you can begin to question your ability as a business owner. Your ability to make short-term and long-term decisions can create wrong choices. It may have nothing to do with your lack of confidence, but the lack of information that is needed. Know what you have and what steps need to be taken by hiring a qualified bookkeeper.
With everything going on around the world right now, it’s a great time to contact your accountant or bookkeeper. Especially because often you don’t need to have any physical contact to begin your relationship. There are also several other non-contact services to get those tasks finally off your to-do list!