Small Business Bookkeeping—Three Reasons It Is Important
Every business should have some form of accounting/bookkeeping records, but many small businesses neglect this activity. It is important for at least three reasons; knowing how your business is doing financially, obtaining credit and preparing tax returns.
First, operating a business without keeping appropriate financial records is like travelling with a blindfold on. You are unable to tell where you are. Accounting records allow us to see if we are profitable, how much cash we have and will need, what we owe our suppliers, what our customers owe us, and on and on. These are vital data for a successful business.
Second, should you need credit in order to operate your business, then your banker is going to want to see financial statements. If you haven't kept records it is going to be difficult to provide the bank with a profit and loss statement, a balance sheet and cash flows. This will delay your loan, and possibly keep you from obtaining one.
Third, the Internal Revenue Service has a great deal of interest in the profitability of your business. Good financial records are necessary in order to accurately prepare tax documents. In my experience, businesses that do not maintain accounts end up cheating themselves out of valuable deductions and paying more tax than is required.
The main reason that business owners don't maintain bookkeeping records is that they do not understand bookkeeping and accounting. This is understandable, but it is not excusable. Accounting software is available that is relatively inexpensive and makes the process workable even for someone who knows nothing about bookkeeping. With no practical knowledge the accounts will not be technically accurate, but items will be recorded and can therefore be adjusted by someone with knowledge.
Another resource is a professional bookkeeper, accountant or CPA. This is more expensive than do it yourself software, but it requires no more effort than providing records to the preparer who will then record them correctly. A good professional will also see to it that required tax documents are prepared and submitted in a timely fashion.
It is vital that any business have some type of financial records. It is one of the first steps that should be taken as soon as the decision is made to start a business.
First, operating a business without keeping appropriate financial records is like travelling with a blindfold on. You are unable to tell where you are. Accounting records allow us to see if we are profitable, how much cash we have and will need, what we owe our suppliers, what our customers owe us, and on and on. These are vital data for a successful business.
Second, should you need credit in order to operate your business, then your banker is going to want to see financial statements. If you haven't kept records it is going to be difficult to provide the bank with a profit and loss statement, a balance sheet and cash flows. This will delay your loan, and possibly keep you from obtaining one.
Third, the Internal Revenue Service has a great deal of interest in the profitability of your business. Good financial records are necessary in order to accurately prepare tax documents. In my experience, businesses that do not maintain accounts end up cheating themselves out of valuable deductions and paying more tax than is required.
The main reason that business owners don't maintain bookkeeping records is that they do not understand bookkeeping and accounting. This is understandable, but it is not excusable. Accounting software is available that is relatively inexpensive and makes the process workable even for someone who knows nothing about bookkeeping. With no practical knowledge the accounts will not be technically accurate, but items will be recorded and can therefore be adjusted by someone with knowledge.
Another resource is a professional bookkeeper, accountant or CPA. This is more expensive than do it yourself software, but it requires no more effort than providing records to the preparer who will then record them correctly. A good professional will also see to it that required tax documents are prepared and submitted in a timely fashion.
It is vital that any business have some type of financial records. It is one of the first steps that should be taken as soon as the decision is made to start a business.