Have you ever wondered how important bookkeeping actually is? I mean, after all, it’s just something you have to do once a year to get your taxes done. Right? Right?? Well, not exactly. Outlined below are 12 reasons why having proper bookkeeping is extremely valuable to your business’s success.
With every piece of content Palm Branch Bookkeeping puts out into the world, we want to provide 3 lenses for you, the business savant. After all, if you aren’t gaining value from what you are reading, why are you reading to begin with? Refer to this article for more information about these 3 perspectives.
Time & Money
- Budgeting
What do you spend your money on? What type of return are you seeing from your spending? Can you afford to continue your spending habits?
These are just a few questions you should be thinking about concerning budgeting for your business. When your expenses are properly organized in your books, you can easily review reports that address these questions, and many more. It is simple to see how efficiently managing your budget can save you oodles of money.
- Tax Preparation
How much time do you spend worrying about taxes each year? Are you put off by just thinking about collecting all of your receipts and trying to get your ducks in a row for your accountant?
Tax filing can be a breeze with the right bookkeeping habits. Imagine having all your receipts current almost as soon as you collect them. It’s actually possible! All of your financial information can be organized in one location, giving you your time back that you used to spend dreading looking toward.
- Reports
If the financial wellness of your company can be equated taking an open-book (pun intended) test, then think of your financial reports as your study notes.
Why risk giving the wrong answer to a question when you don’t have to guess? You can know for certain! How much money do you have in fixed assets? Check your Balance Sheet. What are your monthly recurring expenses? The answer is on your Income Statement. Figuring out the answers to these types of questions positions you to save money and more effectively manage it.
- Profit & Growth
Continuing with the open-book analogy, you can also determine your profit and growth from reports. With clean books, you can accurately see how much profit you’ve had over pretty much any customizable time period for and categories you want to know about. Same goes with growth of the company (or a specific product) (or a specific customer).
Here’s the kicker, though. When your historical numbers are accurate and able to tell you a story, they can be used for proactive purposes! “We grew over 15% in revenue last quarter with a low-budget product that sold out in three weeks.” Now you can focus on a strategy to expand upon that growth and increase your profits!
- Cash Flow
Here’s a new analogy for you (and all credit goes to Don Miller and his book Business Made Simple for this one). Let’s take a minute and view your business as an airplane. The body of the plane is your overhead. Your products and services are your wings. The right engine is marketing and the left engine is sales.
Now, you can have a very well-built plane with strong engines and sturdy wings. But nothing will bring your plane to the ground quicker than running out of fuel! Yep, cash flow is the jet fuel of your business. Mismanage your cash flow and you will undoubtedly start losing altitude.
Financial Clarity
- Analysis
Let’s bring the previous three points together: Reports, Profit & Growth, and Cash Flow. What happens when you combine all three?
You can analyze the financial workings of your business to your heart’s content. Or allow us to do it for you! Edit: sorry for the shameless plug. I’ll go ahead and point it out now to save you some time and anticipation. From here, it will almost be a waterfall of compound effects for the following points, each one building towards the next. Which is good news, by the way. You know what they say about a moving train, right? (P.S. It’s hard to stop.)
- Decision Making
Once you have the tools and groundwork laid out for clean bookkeeping, the sky will be the limit in terms of what types of analyses you can conduct. A quick analysis can help with more trivial decisions, like determining if it is worth the money to repair a product or ship your customer a new one. More thorough analyses will you help have a better understanding of the potential impacts of bigger decisions, such as leasing new equipment or bringing on another employee.
- Planning Ahead: Strategize for the Future
All of the decisions you make have a distinct effect of determining where your business ends up. You are well aware of what planning means to you as a business owner. Planning is the roadmap to your success. Proper bookkeeping are the mile markers on the side of the road telling you where you are and how far you’ve come. Financial clarity is the vehicle you are driving towards your destination: Success City, USA!
Peace of Mind
- Organization
Being organized is underrated. I honestly believe that. It’s time to send some appreciation out to those who are organized on a consistent basis.
Think about it. Knowing exactly where everything is (or more appropriately, knowing how to find where everything is) can be invaluable to a business owner. Accounts Receivable stacking up? Run an A/R Scheduling Report. IRS requesting records? You can pull them up hassle-free. Is the bank asking about cash flow? Have an answer for them in a snap.
- Anxiety with Banks or the IRS
Going a little more off of the IRS requesting records from the above reason. If you fail to provide the IRS with requested records, you could be liable for penalties and fees. The same anxiety can be present when you go to the bank for an additional loan or extension.
Having the previously mentioned organization should temper your worries. After all, you can easily find the answers to most financial questions if your books are properly kept.
- Requirement Under Law
I won’t delve too deep into this one. It’s pretty black-and-white. The law requires you to keep your business records separate from your personal expenses. Failure to do so can lead to serious consequences.
I feel like at this point I should mention I am not a lawyer. You should not use any information contained here as a source in making a legal decision or a decision with legal ramifications.
- Simplify Day-to-Day Business Decisions
How much do you need to pay one of your vendors? If you’re running short on cash, how do you determine who to pay first? Should more of your marketing budget be attributed to one product over another?
So many business decisions are made by “going with your gut.” And although someone’s “gut” might have a propensity of being correct most times, a certain peace of mind is formed when you can back your instincts up with numbers. However, if your numbers are not reliable or consistent, neither will be the results of your decision-making.
In Conclusion
Hopefully you’ve been able to gain at least one valuable tidbit from this article. And if you’re still with me at this point, I can only hope you have! The purpose in sharing this information with you is to offer the possibility of helping you gain more clarity in the financial side of your business. Kudos to you if most of this already sounds familiar and you’re even implementing some of these things! If you feel like most of this is new to you, don’t worry! Palm Branch Bookkeeping is here to help you learn and grow. Either send us an email with any questions you have or schedule a consultation with us so we can dig a little deeper.
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