Accurate bookkeeping is an essential component of small business success. While it may be a nuisance and feel like a chore, it’s vitally important you track your revenue and expenditures. Many businesses that could have earned great success have been bogged down by their failure to properly maintain their financial records. The IRS tells us 40 percent of small businesses incur an average penalty of $845 each year for late or inaccurate filings and payments. Whether you go at it alone or outsource it, bookkeeping is crucial to your small business. Here are some big reasons:
Your business must provide information on a regular basis about its profits or losses in order to access the amount of tax dollars you owe. The information must be correct and presented in a manner that is professional and concise. Failure to stay current with your taxes can lead to severe repercussions—the government can impose penalties and fines that could negatively impact your business.
Business owners can claim expenses that have been incurred as a business expense. These expenses need to be paid from the business bank account, and ideally submitted on a consistent basis such as one time each month. This ensures the person responsible for bookkeeping can better see and monitor outgoing cash for tax purposes.
Oftentimes businesses work hard at building a brand with a passion—yet they fail to track cash flow. It is critical for a business to track its spending no matter its size—and it is only possible with accurate financial records. Several growing and seemingly profitable businesses have failed because they were suddenly hit by a cash-flow crisis that was unexpected—and they weren’t prepared.
Profitability and growth
To determine the amount of profit your business is making, accurate bookkeeping is essential. A number of business owners neglect to track this, but it is vitally important. Bookkeeping allows a business owner to have a better grasp of how much progress they make from year to year. Bookkeeping gives business owners the ability to look back at years past to identify patterns and make comparisons. This helps provide a greater understanding of areas where the business profits and where costs can be cut. Through financial analysis, small business owners can learn how to avoid future problems and pitfalls.
Take time to determine how you want to keep track of your business’ bookkeeping. There are many reasons why small businesses opt to outsource bookkeeping tasks, while others would rather purchase the software available that makes bookkeeping for small business simpler and even provides the needed data required to file taxes. You may also decide it’s better to hire an individual to join your team and manage the financial affairs of your company long term.
While bookkeeping may feel like a burden when you are trying to grow your business, it is worth the time and effort. Diligent bookkeeping is one piece of the puzzle of success and may help you survive today’s harsh economic climate. How has accurate bookkeeping helped your business prosper?
Megan Totka is the Chief Editor for ChamberofCommerce.com. She specializes on the topic of small business tips and resources. ChamberofCommerce.com helps small businesses grow their business on the web and facilitates connectivity between local businesses and more than 7,000 Chambers of Commerce worldwide.