Small Businesses Should Keep Good Books
While small businesses have a less complicated structure, running one often means the owner needs to check up on many roles at once. You need to inspect everything from the supply chain, involving external players, to internal factors including accounting.
In this article, we list down five reasons why you need to maintain good books.
Have better control over your business
Keeping good books means having control over your business. One person can only do so much before limits are reached. Having to worry about a lot of factors of the business, some things simply escape your grasp. Maintaining good books allow you to have a clearer overview of your business.
Having accurate records yield accurate data on which your financial reports will be based on. One report that is crucial for a small business is your Cash Flow Statement which helps put into perspective where your money goes. Having a good cash flow means you are able to estimate your expenses for a period of time. This allows you to identify unusual expenses or spot irregular charges right away.
One of the obvious advantages is to create an accurate budget. When you have organized your income and expenses, it’s easier to review where you get your money and where it goes.
Budgets are important because they are financial roadmaps to lead your business’ growth. Without accurate data to back up your budget, it really is just guesswork, you might as well be flying blind into the storm.
Well-maintained books can also help financially forecast the future and make you aware of any potential financial problems.
Accurate accounting produces accurate estimates from which your business decisions will be based. This is especially important when you are trying to expand your business and you need to identify when there is a need to raise capital.
If you have investors you also need to build a good relationship with them. Clear and accurate accounting fosters better communications between the company and its investors.
Another advantage of keeping good books is creating better tax reporting. You have to be ready for an audit even when you are not expecting it. The best way to be prepared is by maintaining accurate records and proper documentation. The IRS requires the business owner to substantiate their expenses and if your bookkeeping has holes you could be faced with extra charges or worse, end up in an audit.
Good books also allow your CPA to prepare your taxes the best way they can. Complete records will assure you your tax preparer to take advantage of all the possible deductions and prevent you from overpaying taxes.
You can’t expect to manage your affairs properly if you don’t have the records to back it up. Proper bookkeeping is intimately related to the proper management of your business. Curating your information properly will provide the right information to decision-makers and set the right business goals.
Misinformation will cause you to set up business targets that are not feasible for your business. Missing your year-end target will cause low morale. By maintaining good books, you can picture better goals for your business, one that reflects your growth rate.