A common question new business owners ask is “Is my company too small for Accurate bookkeeping?”
The short answer is NO, every business needs to keep their books current. Even solopreneurs or small, two or three man operations should stick to a monthly bookkeeping process. Getting into a monthly habit, rather than periodically updating the books, is best practice. The consequences of not doing so can be drastic: the number one reason most small businesses fail is financial mismanagement. Skipping out on bookkeeping can also lead to tax issues, salary problems, and a lack of financing opportunities, among other things.
The #1 reason most small businesses fail is financial mismanagement
There are a lot of potential issues under the blanket term ‘financial mismanagement’, but one surefire way to eventually run into financial issues of some kind is ignoring the monthly bookkeeping process. Without bookkeeping, your business will have no idea what monthly profits look like, where your expenses are going, who your biggest clients are, and so on. Accounting comes from the word accountability: proper bookkeeping is being accountable for your business.
Piggybacking off the point made above, if you have any aspirations for growing your business in the future, you will likely need to secure some sort of funding. During that process, you will need to have accurate records of your financial history throughout the years. Proper bookkeeping makes sure your business is ready whenever the next big breakthrough falls your way.
You have to pay your taxes
Every individual and company has to file and pay their taxes. Come time to file, you will need to have a clear depiction of your cash flow throughout the year. If you keep track of your books monthly, this will likely be an effortless process for you. But, if you are not, you are going to run into trouble. Additionally, doing your bookkeeping monthly helps avoid forgetting any expenses, for instance, that might lower your tax payments.
Proper bookkeeping can also mean that you can pay your taxes quarterly throughout the year, rather than one lump-sum at the end. Going this route, if your company is in a financial position to do so, can have benefits to your cash flow as well.
Part of the monthly bookkeeping process is reconciling your accounts with your financial records. Throughout the month, certain transactions might get lost or buried away. This can have negative consequences on your banking records as well as your books. If you are not comparing your statements on a regular basis, you are likely to miss such mistakes. Occasionally your bank may spot them, but do you really want to rely entirely on them to do so? Monthly bookkeeping is the best practice to avoid falling into banking issues.
You want to get paid, right?
It is important to take out a salary as a business owner. Presumably you want to get paid so you can pay rent, buy groceries, and take care of your other essentials.
First off, as a business owner, it is bad practice to just draw money at whim. And, if you are not taking a salary and you are not tracking your books, you may run into some serious issues. You may not have enough funds to cover your own drawings, or you may draw money and then default on other payments. If several of these problems occur at once or if an emergency arises, the consequences can be especially serious.
Others want to get paid
Whether you have employees, contractors, or other expenses, at some point they are going to want to be paid. Without current books, you will not always know what your payables are. Alternatively, you may lose track of your company’s receivables. When things are small, especially for those solopreneurs, you may feel that you will not forget to pay or collect your money. However, sooner or later you will run into issues, so it is simply best practice to properly record your books from the beginning.
Learn how Booktied can help your bookkeeping and financial analysis headaches go away. Schedule a free consultation today: www.booktied.com.