As any small business owner knows, running a business is stressful. Most small business owners become masters of multi-tasking and to cut costs, opt to do their own bookkeeping instead of hiring a professional to do the job. Consequently, in the chaos of keeping all the balls in the air, bookkeeping often lands on the back burner, and that’s risky business.
Bookkeeping is an important process that tracks your company’s financial performance. Without it, owners don’t have a solid understanding of their finances and are unable to plan for the future with confidence. It’s important to be consistent, timely, and accurate with your bookkeeping. Here are eight reasons why you should keep your bookkeeping up to date:
1. Helps You Budget
Bookkeeping is integral to budgeting. Having reliable financial data enables small business owners to estimate revenues and expenses to create an accurate and manageable budget. Regularly comparing your budget with actual financial data is the best way to identify potential cash flow issues or cost reduction opportunities. Without proper bookkeeping practices, budgeting can be a difficult and stressful activity.
2. Stay Compliant with Tax Filings
Most businesses are required to file a tax return and remit sales and payroll taxes during the year. Oftentimes business owners fall behind in their bookkeeping and scramble to get their books caught up in order to file taxes before the deadline. Leaving these tasks to your year-end accountant can also lead to expensive bills at the end of tax season. Therefore, having a set of accurate and organized books throughout the year will enable you to easily calculate how much tax you will owe, reducing the risk of late payments and penalties.
3. Maximizes Business Deductions
Disorganised or sloppy bookkeeping can cause your accountant to overlook legitimate business deductions or worse, the CRA may not allow you to claim deductions due to inaccuracies. Good bookkeeping minimizes the margin for error, therefore, ensuring that your business pays the least amount of taxes possible.
4. Creates Visibility on Your Business’ Financial Performance
As a business owner, you should be on top of your business's financial performance. Monthly bookkeeping tracks important financial statements including balance sheets, income statements, and cash flow statements, for easy analysis of your profit or loss. This data shows how you’re tracking against targets, and when collected over time, allows you to observe trends in your business and compare results from quarter to quarter, year over year. This identifies opportunities for growth and addresses potential issues that may arise in the future.
5. Manage Cash Flow
According to recent research conducted by CB Insights, 29% of startup businesses fail due to cash flow issues. For business owners, having sufficient funds is critical for managing operational expenses and equipping their business for growth. When you're on top of bookkeeping, you can easily track payables and receivables and ensure you have enough money to pay your bills.
6. Drives Better Decision Making
In order to plan for your company’s future, you need to have a good understanding of your business’ financials. As a business owner, you may have to make big decisions like hiring a new employee or opening a new location. To make these decisions with confidence, you need to have a good grasp of the financial performance of your company. Accurate bookkeeping provides you with useful and up-to-date financial information, giving you the tools you need to make important business decisions.
7. Readies You for Funding
As a business owner, you may want to apply for a bank loan or raise external funding from investors which requires accurate financials. Having access to the right information at all times makes reporting to funders a lot easier for you and your business. By maintaining an accurate set of books, you increase the confidence of funders in your ability to lead your company and grow your business.
8. Keeps You Audit Ready
As a self-employed small business owner, you are always on the CRA audit radar. Accurate books keep your business audit-ready and can lead to a faster, lower cost experience.
Good bookkeeping is integral to your business’ success. If you are unable to maintain your business’ books, or cannot afford a full-time bookkeeper, outsourcing this task to a firm like Enkel can save you time, money and stress. At Enkel, bookkeeping is what we do. We provide businesses across Canada with accurate and reliable bookkeeping services every month. Are you ready to get back to doing what you love? Let’s talk.