When it comes to running your business successfully, you need to incorporate good bookkeeping practices, which should be completed regularly. These practices are going to help you identify and fix problems before they take a toll on your business. When these practices are followed on a regular basis, they become a habit and soon you will notice that your tasks are getting easier as you master these practices. The last thing that business owners want to do is worry about their bookkeeping practices. For those who have just started a small business, bookkeeping seems like a new concept and it may take time before you get a grasp of the bookkeeping practices. However, when you know why good bookkeeping practices must be followed, you will make it a point to incorporate them in your business.
The benefits of good bookkeeping practices:
• Monitor the failure and success of your business regularly. Without following good bookkeeping practices, you can always make yourself believe that your business is still doing well. However, you will realise the importance of bookkeeping when you discover that your business is not doing good. Bookkeeping allows you to obtain timely and accurate information. You will know if your sales are increasing faster or if the expenses are too high based on your sales level. You will also have an idea if your expenditures do not appear as expected.
• Make sound financial decisions. A bookkeeper can give you recommendations based on what they see on the financial report. Before a decision can be made, evaluating the financial consequences must be kept in mind. You will never know the financial impact of a course of action that a bookkeeper provides if you do not have a financial report. A financial report tells you where your business is headed. Is it time to hire another salesperson? Do you have a profitable product line?
• Bookkeeping procedures are put in place. Before you obtain bank financing, a banker needs to see your financial statements including the cash flow budget, balance sheet and income statement. These statements can create an impact on your requested loan. You will also have to prepare your bookkeeping documents and procedures so the bank can verify if you are running your business in a professional manner.
• Prepare an accurate tax return. Every business is required to file an income tax return and make timely payments of income taxes. Good records are essential in preparing your tax return and it also allows you to provide accurate information. When you have poor records, your business will have the tendency to overpay or underpay taxes. Good recordkeeping can help prevent chaos in bookkeeping.
• Obtain other sources of capital. If your business is expanding, you need a partner that can help you with expansion. A prospective business partner wants to take a look at the status of your business and being familiar with the financial picture is one way for them to gauge if you make a good business partner. Suppliers and creditors will also require your financial records because they can use them as basis for identifying your credibility as a borrower. These sources of capital are less likely to put their trust in you if you have poor financial records.