I know the day to day effort and grind a business owner can endure and I totally understand that most do not consider bookkeeping and financial analysis a priority in their business. Some, if not most business owners if they had it all their way, would solely focus on serving their customers and clients as that is their passion. However, if you are one of those business owners who keeps a shoebox or file of receipts and gives it to your tax preparer at the end of the year then this article is for you.
Keeping a good set of updated accounting books can do wonders for the bottom lines of your business. In fact, it is almost impossible to know the true bottom line of your business without it. Wouldn’t you as a business owner want to be made aware of abnormally high expenses or low income in real time so you can adjust accordingly? I know I would want to know as soon as possible if I am spending more than I think to get clients, or on my cost of goods sold, or my overhead so I can correct these and minimize losses.
Not only can a good set of up to date books make you aware of cost splurges it can give you job, project, or service specific data. This will help you easily track which services or products you offer are selling well and those that are not. This information can help you decide if it is worth keeping this product or service as is, change its price or cost, or discard it all together. Also tracking costs specific to a job or project can show you exactly how profitable that specific project or job was.
Business owners need to be able to make critical decisions on a daily or weekly basis and having financial data up to date will allow them to make more informed and educated decision as opposed to dangerous guess work. Most businesses either succeed or fail as a direct result of how aware and knowledgeable they are about the ins and outs of their day to day business and their financial data is no exception. If you have to think long and hard when someone asks you how much profit you are making on your clients or products then this should be a red flag that you might need to start keeping a set of books.
Another excellent reason to have a good set of books on hand is for raising capital. Most banks or loan institutions want to see a profit and loss, balance sheet, and bank statements to obtain loans or investors. Without a set of books, you will find yourself scrambling to get these in order in a pinch or go without which may cause you to be denied for the additional capital. A good set of books shows not only that you have a healthy business but a well-organized one and will reduce any doubt on the investors side that they are dealing with a true professional. You also may need to file quarterly taxes with local or state tax offices; these are easy to do if you have maintained books that will easily show your total sales and total tax collected so you don’t have to fumble through receipts to obtain data.
In conclusion, having a reconciled, updated, accurate and easily accessible set of books helps you stay and become more profitable and more organized. A set of financial documents can be your key to making more informed decisions, obtaining more capital, making tax filings easier and more accurate, keeps you aware of pitfalls in your business, and gives you a big piece of mind. It also saves you essential time needed to focus more on your passion of serving your customers and clients rather than worry about the back end of your business.