As a small business owner, you already have a lot on your plate. And while bookkeeping is integral to any business, most business owners aren’t experts. A simple mistake can lead to loss of revenue and investors, and tax filing errors.
Accurate bookkeeping can mean the difference between success and failure for many businesses. So what is bookkeeping, and why is bookkeeping important for a small business?
What Is Bookkeeping?
Before delving into why bookkeeping is important for a small business, a core definition is in order. Bookkeeping is creating, organizing, and maintaining a business’ financial records. It is how you track your business expenses and revenue, and is crucial to tax filing, investor reporting, decision making, and more.
Why is bookkeeping important? Let’s take a closer look at 17 reasons why bookkeeping is important for a small business:
1. Organize Your Business Records
Codifying financial information is perhaps a bookkeeper’s most vital role in your business. Regardless of what’s happening in your business or industry, you need those records to make decisions, interest investors, apply for loans and grants, budget effectively, monitor your revenue and losses, and more.
2. Make Decisions Easier
Another reason why bookkeeping is important is it impacts your ability to make sound business decisions. Having a clear understanding of your financial records and projections helps you make decisions involving:
- Loans and other financing opportunities
- Identifying and hitting company goals
- Hiring and firing employees, as well as their wages and bonuses
- Taxes, cash flow, and grants
And those are just a few examples. With a bookkeeper, you can evaluate your records using accurate data to help you make informed decisions.
3. Create Accurate Financial Records
Your business decisions are only as good as the records you have on hand. It can be difficult for business owners to individually track every expense, loss, and profit. Maintaining accurate records requires a lot of work, even for small businesses.
For example, do you know how much your business has spent on payroll this year? How about the amount spent on inventory so far this year? Do you know where all your receipts are?
4. Tax Filing
Business taxes are complex, time-consuming, and can be stressful when trying to do them alone. Bookkeeping services that include tax filing take a lot off your plate come tax time. An expert will know things such as:
- What forms need to be filed
- Any deductions or credits your business qualifies for
- Potential tax write-offs
- Accurate data for revenue and expenses
If your taxes are off in any way, you’re more likely to be audited. If that happens, you’ll need to supply the IRS with the records your bookkeeper will have readily available.
A bookkeeper provides you with organized and accurate financial records. You can review those records to help budget your expenses, find areas where you can save, see where a supplier may have increased costs, and more.
6. Attract Investors
Many small businesses need funding, especially when first starting out. One of the simplest ways to receive funding is through investors. But investors require an overview of your business and finances before they’ll want to invest. Not having up-to-date records will likely turn away potential investors.
7. Better Cash Flow
Bookkeeping can improve a business’ cash flow in many ways. For starters, you’ll be able to manage vendors, customers, and employees more efficiently. That means you can find ways to cut costs and ensure your customers are receiving services on time.
8. Get an Accurate Overview of Your Business
Bookkeepers don’t just provide you with a look at your financial records. You get an accurate overview of your business’ entire operation, including revenue, profit and loss margins, and so on.
9. Easier IRS Audits
Another reason why bookkeeping is important is to protect your business in the event of an IRS audit. With detailed books, the odds your business will be audited are lower—but it can happen. Should you be audited, you’ll need to provide the IRS with answers to any financial questions they have and provide accurate records.
10. Easier to Set Business Targets
The goal of every small business is to grow, but that’s a challenge if you have poor financial records. Bookkeeping provides accurate data, so you’ll have an easier time setting business goals rather than making guesses that could leave you disappointed.
11. Meet Government Regulations
You must comply with federal, state, and local business regulations, including following tax codes, antitrust regulations, and state licensing requirements. An accurate overview of your business will help you ensure your business stays within government regulations.
12. Get Extra Peace of Mind
With so much riding on accurate records and overviews, a bookkeeper provides peace of mind and reduces the risk of failing, being audited, missing business opportunities, and so on. You’re already spinning a lot of plates as a business owner; the last thing you want on your mind is wondering whether your books are up-to-date and accurate.
13. Proper Reporting to Investors
Once you’ve secured investors for your business, you’ll need to report to them routinely. Investors want to know whether or not a company they’re supporting is making a profit and how it performs overall. That’s where good bookkeeping records come in.
14. Track Business Growth
Creating achievable business goals won’t matter if you can’t accurately track your business’ growth. But with accurate overviews and financial records from a bookkeeper, you’ll see the growth over time and be able to celebrate milestones and adjust your goals as necessary.
15. Meet Proper Record Laws
Businesses are required by law to maintain accurate records. For example, the IRS requires companies to keep employment tax records for at least four years. Additionally, you’ll need to provide your income and deduction records on your tax return.
16. Learn from the Experts
An easily overlooked reason why bookkeeping is important for a small business is that it gives you the chance to learn from an expert. If you’re interested in knowing how the books work, you can get a better overview of your records, how they are organized, and the data used for them.
17. Ensure You’re Not Missing Valuable Business Deductions
Taxes are complicated, and tax laws can change from year to year. That includes business deductions which reduce your tax responsibilities. A bookkeeper will make sure you never miss out on these profitable opportunities.
Let Vyde Handle the Books
Now that you know why bookkeeping is important, let us handle the books. Vyde lets you choose the plan that best fits your business at an affordable price. So whether you need help catching up on your books or you’re searching for a reliable ongoing small business booking and tax service, trust Vyde. Don’t wait. Contact Vyde to assist you in all of your small business taxes needs.