10 Reasons Your Small Business Needs Bookkeeping
Accounting and Bookkeeping for your small business may not be the most fun aspect but they are the most important. Fundera performed a study and discovered that 20% of small businesses fail in their first year, 30% fail in their second year, and 50% fail after 5 years in business. However, 70% of small businesses fail in their 10th year in business.
Why are these businesses failing?
That same study showed that 29% of small businesses failed because they ran out of cash and 23% failed because they did not have the right team. 18% of small business failed because of pricing and cost issue and 17% failed because they lacked a business model.
These four ways equates to 87% of why businesses fail. Running out of cash, not having the right team, pricing and cost issues, and a lack of business model can all relate to not having the right accountant/bookkeeper or not having one at all.
If that was not convincing enough, here are 15 reasons as to why your small business NEEDS a bookkeeper.
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Budget
In order to properly budget you need income and expenses organized correctly. With a budget you can help plan for future expenses of your business and better anticipate and allocate costs.
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Tax Preparation
As a business owner you may have found yourself scrambling come year end to get all the necessary paperwork to be able to file your tax return. Not only can bookkeeping be more efficient but also cost effective. If you are paying a bookkeeper to keep your books up to date over the months, less back work is needed by your tax firm to get your documents ready to process your return.
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Organization
Generally, there are five main parties that will be interested in your company’s financial records – the IRS, employees, customers, investors, and lenders. Being able to provide the information requested by these parties is crucial to running a successful operation. By definition, bookkeeping is the organization of financial information. Keeping your financial records organized makes it easier to locate and provide to appropriate parties.
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Analysis
Financial statements are a product of bookkeeping, by using those statements you can better understand where your business stands financially. Allowing you to analyze the strengths and weaknesses of your business so you know what to capitalize on or what to improve.
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Decision Making
After analysis comes decision making. In order to make the most informed and accurate decisions you need to see the best and most updated information on your business.
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Planning
In order to plan for the future, you need to see the past performance of your business. Bookkeeping will provide you a clear-cut picture on what has and has not worked for your business in the past. Not only will it help you plan but it will help with tax planning as well. For things you may want to do in the future if it may be a tax benefit come tax season.
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Reporting to Investors
If you have investors in your business they need to know the financial performance to see the value of their investment in you. Providing investors up to date financial statements allows them to make well informed and better decisions in the money they invest and where. Additionally, keeping your investors happy is key, providing them this information not only keeps them happy but maybe opens the door for them to invest more or bring in other investors to continue your dream of growing your business.
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Track Profit and Growth
Bookkeeping shows your business’ profitability. The income statement is one of the documents that is included in the financial statements you receive from your bookkeeper. This allows you to track whether your company is in fact making money and how that compares to years passed. With these months and years of income data you will be able to see trends and gain a greater understanding of your business cycles.
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Better Cash Flow
One of the many things your bookkeeper will do is categorize your spending. Labeling them revenues, expenses, liabilities, receivables and more. All in all showing you the money that is coming in and money going out. Allowing you to see if there are any outstanding balancing and in which period they occurred. Which can help improve your business processes and executing work.
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IRS Audit
Last but not least, the law requires you to keep financial records for your business and to keep them separate from your personal records. If the government receives a red flag on a tax return you filed they could require tour business to be audited. If you do not have up to date financial record it makes that process much longer and more difficult. If you are keeping your records up to date and accurate it may even prevent the IRS from requiring an audit from your business.
In Conclusion
Keeping financial records up to date for your business might be the most important aspect to keeping your business afloat. As stated earlier the four main reasons small businesses fail is because the business runs out of cash, they do not have the right team, price and cost issues, and a lack of business model.
If you have a bookkeeper you have a better idea on the money coming in and out, allowing you to make the right decisions in order to not run out of cash. Having a bookkeeper on your team allows you to discuss financial aspects of your business and helping you see how you can re-evaluate your team based on the money you are spending in those categories. With that information you can also better see the what you are spending on items to better price your items to hopefully illuminate any pricing or cost issues. And finally, having the financial aspect of your business rooted helps you to better plan in other areas and create a solid business plan.
All this to say, bookkeeping is incredibly important. QBO can help in all of these aspects as well as processing your tax return. Allow us to be a member of your team and get your business financials under control.