Every small business owner is legally required to have accurate and up to date accounting records at least once a year in order to file their taxes, but those who are only staying on top of their books for the sake of Uncle Sam might be missing out on some significant perks.
Not only does proper bookkeeping ensure you are meeting your tax obligation, but it can also provide a clearer picture of your business’s financial wellbeing, and even help you earn and save more money. That’s because proper bookkeeping can help you avoid potential penalties, fees and unnecessary costs, find opportunities to save money and help you make better decisions when it comes to managing your business.
In fact, having accurate and up to date financial information at your disposal 365 days of the year can provide a range of far reaching benefits to small business owners. Here are just a few:
It can reduce the likelihood and burden of an audit
Having accurate and up to date financial records can reduce the likelihood of being audited, but it can also keep the headache of an audit to a minimum in the event that one is conducted. After all, there’s little reason to fear an audit when your books are already properly organized and up to date.
It can improve cash flow management
One of the biggest threats to small business survival is poor cash flow management. In fact, a study by CB Insights found that 30% of small businesses fail as a result of running out of money.
But it’s hard to stay on top of the flow of money in and out of the business without accurate records. Proper bookkeeping not only lets you gain a more accurate picture of your business’s financial health, but it can also help you anticipate and avoid any potential cash flow issues on the horizon.
It will improve your ability to receive financing
Well maintained books make it easier for small business owners to receive outside financing, as they’re often the first and most important records required by loan providers and investors. Even if you’re not seeking outside financing at this time, proper bookkeeping can expedite the process in the event of a crisis. After all, when faced with a critical cash flow problem you probably don’t want to spend a significant amount of time working on updating your books before you’re able to solve it. Proper bookkeeping can instead allow you to rest assured that your business is ready to pursue outside funding without any delays.
It can improve your invoicing cycles
When invoicing is running smoothly, you never have to worry about missing a payment to a vendor, or not being compensated for your work. Keeping track of payments will also allow you to gain a better understanding of how the business spends its money, which can help you solve redundancies and other ways to reduce cost. It can also ensure that you’re not missing any payments that might otherwise result in unnecessary late fees and penalties.
And as disruptive as it can be to miss a payment to a vendor, it’s far more costly to let your own invoices slip through the cracks. Proper bookkeeping ensures you’re sending out invoices to the right clients at the right time, and also helps you manage and track your own accounts receivable to ensure you’re always compensated for your work.
It will reduce your payment cycles
Every day you wait before sending an invoice to a client is a day you will likely have to go without receiving payment. Even if you can afford to wait a few days for a few payments, however, too many delays can add up to a real cash flow crisis. Ensuring that you are being properly compensated in a timely fashion is one of the best things you can do to prevent a cash flow crunch from threatening an otherwise successful and viable business.
It will keep your employees happy
Proper bookkeeping can help improve employee wellbeing and morale, and not just among the accounting department. Without accurate books you run the risk of paying employees late, or the incorrect amount, which can cause a whole range of headaches for both parties.
For example, any misalignment between the employee’s stated income and their actual earnings could have repercussions in their tax filings. That doesn’t even take into account the awkwardness of a conversation about why you paid them inaccurately or way too late.
It will help you see the forest through the trees
If you’re only updating your books a few times a year, you’re potentially missing out on crucial insights that can help you become a better business leader. Without accurate bookkeeping you’re often forced to be reactive, as you’ll only become aware of problems when they become too obvious to miss. Disorganized books not only make financial problems more difficult to identify, but also more difficult to solve.
With accurate and up to date financial records, however, you’ll be able to identify and prevent potential threats to your business before they become critical.
It’s never been easier
There was a time when small business owners had to do their own books, hire a full time staffer or outsource their bookkeeping to a costly accounting firm, but now there’s a fourth option that offers more flexibility, convenience and cost efficiency than all those that came before it. Online solutions like Wave offer software tools for small businesses that makes bookkeeping easier, less time consuming and more cost efficient than ever before.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.