Importance of Bookkeeping for a Growing Business
Starting a business may seem simple, but there are many moving pieces in any small business that may be challenging. Arguably, one of the most important moving pieces in a small business is having a clean set of financials to help run and manage the business.
Daily bookkeeping can be a make or break when it comes to measuring and understanding your business. Bookkeeping can help a growing business get funded, manage cash flow, stay tax compliant and organize business operations. Bookkeeping is a universal part of a business – it may not be completed in the exact same manner across all industries, but is undeniably a backbone to the success and operation of any company.
Getting funded with bookkeeping
That moment you realize you need additional capital, but your books are 6 months behind and you already have so much to do. The worst right? Keeping up with your bookkeeping on a weekly or monthly basis can save you the pain of having to do several months of cleanup at once, which usually results in errors and potentially flawed data. Investors will be impressed by a small business who knows where every penny has been spent or received. Ignorance of accurate record keeping is usually a trait found among small businesses right after beginning operation.
Managing cash flow
Outside of looking at the bank balance every day, how can you know what your cash is doing? By keeping up with your bank transactions on a regular basis, you can accurately monitor your cash flow and calculate important metrics like burn and run rates so you know exactly how much cash you need to get through this week/month/year.
Are you only focusing on your top line revenue and nothing else? By evaluating books that are well organized – you will be able to see areas of your business that may be more or less profitable/less and/or have the potential to be optimized. By diving into your books, you may find a particular segment of your solutions or products generates a higher profit margin. Your business can then adapt to invest in certain areas to become more optimized based on analysis of the financials. Don’t leave any opportunity on the table – keep clean books as a starting point for your company’s success!
Measuring Profitability and other Key Performance Indicators (KPIs)
Don’t be that guy or gal at dinner when your entrepreneur friends are talking about their business KPI’s and it comes to you and you’re drawing a blank. So you know how much you sell your product or service for, and you know what it costs to produce it. Have you thought about labor cost? Have you considered indirect costs such as credit card fees and facility expense? Without tracking your transactions and properly bookkeeping, your measure of profitability could be skewed. Without knowing how much money has been spent in each expense category, you can’t measure any area of your business accurately. A trusted advisor will have trouble assisting you with business decisions unless they see a complete set of financials.
Staying tax compliant
Just got a tax notice in the mail? Can’t remember yesterday let alone a month ago when you were sure you paid that tax bill? We’ve all been there. If your bookkeeping was up to date and you were tracking transactions, you’d know for sure if that payment went out and when. Not complying with the IRS can result in huge fines and penalties, not to mention a headache. If your books are up to date you can accurately calculate any tax due and track payments when they go out.
In the instance that your firm receives notice of being audited – you can rest assured that you are well prepared to turn over financials and your records. Having accurate and up to date books will ease the stress of the audit process. The investment in accurate financials will pay off as the average audit process requires an additional 60+ hours of your bookkeepers time if they are not well-kept. Save the stress and start your financials in an accurate manner.
Organization of business operations
How’s business going? This is the dreaded question you do your best to answer without knowing for sure exactly what your financials look like. By maintaining accurate books and records, you’ll feel confident and able to answer this question when it comes. You’ll have an actual visual of how performance is going and if your business is growing. Fundamental bookkeeping is not only the key to understanding your business, but it’s also being able to make proactive decisions to get back on track as changes come about.
Is your business on the radar of being bought out by investors or an interested party? Having accurate financials will allow you to calculate your firm’s value in your industry. They will also give peace of mind to your investors who have made you a solid offer. It will offer assurances to help the buyout process be completed with the confidence of both sides. Having incomplete books will impede both your ability to calculate an accurate firm’s value and lose your buyer’s confidence.
A professional bookkeeper does not need to be a full-time employee. These services are often best outsourced to firms who have strategies in place to help a small to medium-sized business excel at what they do best, providing services and solutions to their clients. As a business owner, it is counter-productive to focus on growing your business while handling the bookkeeping and accounting. Business owners are often quick to overlook the fact that tax planning and accurate bookkeeping become much more complicated as a company scales in size.
Bookkeepers and accountants are evolving into a financial advisory role more now than ever before. Bookkeepers and their related teams are analyzing your data on the front lines and will be the first to make a recommendation or raise a concern.
Bookkeeping data is being turned into meaningful analysis every day and you can see how by reading about the connection to cloud partners in platforms. Hiring a bookkeeper to manage your financials can help your growing business with different financial challenges!
Are you looking for a bookkeeper? Bookkeeper360 is a financial technology company that specializes in bookkeeping, accounting, and business advisory for small to medium-sized businesses. Recognized as a two-time winner of Xero’s Platinum Partner of the Year award and ranked as one of Inc 5000’s fastest growing companies, Bookkeeper360 is proud to be at the forefront of helping business owners follow their passion and grow.