Too many small business owners wait until the end of the year to review their company’s financial information. They do it solely for the purpose of getting the information to their tax accountant who needs it to prepare the business’s tax returns. With limited employees and minimal time, owners feel that bookkeeping is just not a priority. Often the justification is that they believe the business is doing just fine so the books can wait. But I tell every client that bookkeeping is a vital part of his or her business’s operations and neglecting the books is detrimental to business’s success and a high stakes risky endeavor.
Major Reasons Why Bookkeeping is Vital to Your Business’s Operations and Success:
Improved Financial Analysis
The only way to know whether your business is generating profits and is performing competitively when compared to others in your industry is to have accurate financial information. Success cannot truly be measured without knowing if your business is meeting industry standards, more importantly you will not know if your business is missing growth opportunities.
Short-term Operating Decision Making
Are you ordering excessive inventory? Are you charging enough for your products and services? Are your costs increasing at a higher rate than your sales? Can you increase your income by reducing some costs? These are some of the questions that accurately and timely prepared books can help you answer.
Securing Bank Financing or Acquiring Investors
Every savvy business owner knows that the ability to secure bank financing can mean the difference between staying in business or sudden business death. Cash flows are vital to maintaining the business’s day-to-day operations and bank loans can aid in ensuring that a business can manage thorough slow sales cycles. Without properly prepared financial statements your business cannot secure a loan.
Strategic Business Planning
Strategic business planning reflects the long-term vision you have for your business. Do you intend to diversify your business product or service offerings? Are you planning to open a second location? Are you going to bring in new partners to help you grow the business? Will you want to make capital improvements? Will you buy a new building or equipment to improve or expand your operations over several years? Your company’s books can help you determine when you will be able to implement your long-term strategic plans.
Fulfillment of Tax Obligations
Maintaining the books throughout the year will facilitate the preparation of the business’s tax returns. If you are selling products or services in multiple states you may have tax collection and remittance responsibilities in those states in addition to the state of your incorporation and federal requirements. Timely bookkeeping will help you avoid assessed penalties and interest for filing late tax returns or not filing mandated tax returns.
Record-keeping as Required by Law
The law requires that all businesses maintain accurate and timely books. Not maintaining books and holding on to documentation as required by law can result in the lost of allowable deductions and significant increases in income taxes along with assessed penalties and interest charges. The better records you keep, the better prepared you are to beat and an audit.