How much thought have you put into the importance of bookkeeping?
If you’re unfamiliar with the purpose of bookkeeping or simply do it incorrectly, then these issues probably haunt you and your company:
- The payroll process causes consistent problems
- You pay too much in taxes
- The business struggles to obtain financing
In the following information, we’ll explain 5 important aspects of bookkeeping that reveal the benefits of bookkeeping. Use these tips to keep more money in your company’s bank account.
What is the Importance of Bookkeeping?
Bookkeeping helps keep your business in compliance with the IRS and helps you financially manage your company more effectively.
Many people think that bookkeeping mainly deals with keeping records organized. However, bookkeeping affects several areas of your business.
Keep Tax Files in Order
There’s no need to continue feeling stressed during each tax season. Bookkeeping makes sure that you don’t need to sift through piles of paperwork to get your tax return completed.
Everything remains organized and ready to report if you’ve done regular bookkeeping throughout the year.
Maintain Accurate Financial Records
It’s difficult to operate a profitable business when you can’t accurately understand where each penny goes.
Using bookkeeping services provides you with the records needed to see whether you spend too much in one or whether certain types of clients provide improved profit opportunities than other clients do.
Improve Cash Flow
How often do you find yourself hedging on financial decisions because you need to sit down, take another hour of the day, and slowly come to realize which way to go? You’ll have a clear view of business cash flow if your bookkeeping is up to date.
Understanding cash flow also helps when weighing the pros and cons of business lending.
Handle an IRS Audit Well
Business audits are not a common occurrence. However, it’s never an easy situation to navigate if it happens and your bookkeeping isn’t up to par. On the other hand, it’s simple to answer all IRS questions if your books remain in order.
What is Bookkeeping?
Now that you understand the importance of bookkeeping in business, let’s make sure you understand what it is.
Simply put, bookkeeping is a process for recording and keeping track of a company’s financial transactions. Bookkeepers provide the following services:
- Process payroll transactions
- Keep track of client receipts
- Issue client bills
- Create financial reports
- Fix accounting errors
Why You Should Outsource Your Bookkeeping
If you have any doubts about your ability to perform bookkeeping correctly, then you should outsource to someone who does it professionally. Here are specific reasons to outsource your bookkeeping needs.
Save time on training others within your organization on the act of bookkeeping. A professional bookkeeper can step in and get the job done correctly from the start.
It also ensures that your financial records are completely private. You’re likely to prefer that managers and employees don’t see everything about your company’s finances. A third-party bookkeeper will make sure that they communicate the financial health only with you or someone else you specifically designate.
Get a professional’s opinion about how your company’s bookkeeping should work. Should you use single entry or double entry bookkeeping? What types of transactions make the most sense to pay attention to? What areas don’t factor much inside your industry? Can your books support qualifying for a business loan?
Stop wondering about these things and get the expert opinion that puts your mind at ease.
Tips for Sole Proprietors When Bookkeeping for Startups
As a startup, it’s imperative to keep personal and business expenses completely separate. Open a bank account in the business name and pay all bills from that one account.
If you decide to do your own bookkeeping, then obtain quality bookkeeping software. Again, outsourcing to a professional bookkeeping service probably makes the most sense.
Select the accounting method that works best for your company. You can choose from cash basis accounting or accrual accounting.
Keep responsible records, make sure your books stay up to date, ensure that your inventory remains accurate, and file your financial documents correctly.
Tax Season Can Be a Breeze if Your Bookkeeping Remains Structured
The importance of bookkeeping, accounting, and auditing becomes crystal clear at tax time. Paying the wrong amount, filing late, or failing to pay quarterly taxes on time can get you into IRS trouble.
The accurate recordkeeping that results from bookkeeping is one of the best ways to stay on top of all business tax responsibilities. It also saves your company money because your bookkeeper can help make sure you never miss opportunities for spotting which expenses to legally deduct from gross revenue.
How You Can Implement Bookkeeping Into Your Business
Now that you know the importance of bookkeeping, here are some simple ways to use it in your company.
Track your income and expenses carefully. You should have a way to see the following items at a glance:
- Canceled checks
- Bank statements
- Credit card statements
- Previous tax returns
- 1099 and W2 forms
Decide on using the accrual or cash method. Set up the payroll system for the company. Determine your tax obligations for the business. Keep meticulous records of income and expenses. Review this information continually and keep bookkeeping records up to date.
The challenge with implementing bookkeeping into your business is that you’re already busy operating the company. If you’re overwhelmed with fulfilling your regular role, then that’s another reason to outsource the bookkeeping role to a professional service.
All businesses should conduct bookkeeping properly. The importance of bookkeeping in agriculture exists. It’s also important for industries such as construction, transport, aerospace, education, and telecommunications.
The importance of bookkeeping manifests in several areas. You need the information provided by bookkeeping when applying for loans. You need it to perform payroll properly. It comes into play when saving money on taxes and paying taxes on time.
In a nutshell, it’s impossible to run a well-maintained and profitable business without performing the art of bookkeeping professionally and accurately.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.