By Justin Griffin: July 20, 2017: Blog

 

Proper bookkeeping is one of the most important tasks for a small business. The foundation of good accounting practices in your business is solid bookkeeping. You can learn a lot from your business transactions, but without bookkeeping you are flying blind. One of the most important things to being a successful entrepreneur is doing your homework. Bookkeeping is definitely homework. It is not fun or glamorous to do your books but it keeps your bills paid, saves you on taxes, and might even teach you a thing or two about your business.

The entrepreneurs that do the extra work, analysis, and studying are the ones that succeed. Staying on top of your books is one of those extra mile activities. It is something a surprising number of business owners don't do and it always ends up costing them in the long run. It is a necessity of any well functioning business. 

Bookkeeping is the process of recording all of your business's financial transactions. Your revenue and expenses should be meticulously cataloged and categorized. 

If you have accounting experience you can do this in an Excel spreadsheet, but most small business owners use accounting software, such as Quickbooks or Freshbooks, or they hire a bookkeeper. 

The benefits of bookkeeping include:

  1. You can analyze the financial state of your business, like how much you are making vs losing on certain projects. 
  2. Allows you to budget, so you can make sure you are allocating proper amounts of money for future large expenses.
  3. Project your cash flow. Even if your business is making money there can be a lag when you collect. Trust me, don't ever count on customers paying on time. Bookkeeping can give you insight into your in-flows and out-flows of cash, and allows you to plan for the timing.
  4. Allows for the production of financial statements that can be used to analyze your business, get a loan, or sell your business. A business with well organized and prepared financial statements can sell for a lot more than one that has no record of past performance. 
  5. You will know better how much you can pay yourself. Very important.
  6. Keeps the IRS away. It will help you to not have discrepancies in your tax filings, you will know how much to pay in estimated quarterly taxes, and when tax return time comes you will be able to get all of your deductions because you kept track of it. 

Keeping a clean set of books gives you clarity, protects you, and can make or break your business in the long run. You must know where your money comes from and where it goes, so stay on top of those books. 

 

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