Bookkeeping is one of the main accounting services. It ensures your taxes are done properly and your finances are in order in the event you’re audited.
But maintaining your books isn’t something you should do solely as a tax-savings strategy. If done right, it can also prevent you from losing your sanity and help you manage your company’s finances. Bookkeeping can be a great way for small business owners to maximize how far their money goes.
8 ways bookkeeping can help your business
Sure, bookkeeping can help you stay out of tax trouble and ensure you have an idea of where your funds are going. This is selling bookkeeping short, though. It can do so much more.
If you’re still unsure about the necessity of a dedicated bookkeeper, here are several significant reasons for maintaining a separate checkbook and set of books for each of your businesses.
1. Corporate veil
Maintaining a separate checkbook substantiates the corporate veil, which is one of the primary reasons for incorporation. Having a separate checkbook shows that you recognize the company as its own distinct entity. Furthermore, separate checkbooks and bank accounts will encourage you not to commingle personal and business funds. (That’s bad, in case you were wondering. Not only can it lead to a financial mess, it could also make your personal assets vulnerable in the case of legal issues.)
2. Tax savings
Separate banking will improve bookkeeping procedures, prevent payments from being missed, and provide better records to improve your tax return. We all know that “bad books” will cost us on our tax return, so why not stop that cost from being incurred in the first place? Not to mention, good bookkeeping makes tax preparation much easier.
3. Audit protection
In the event of an IRS audit, having a separate checkbook and financial reports will improve your chances of surviving the audit without major repercussions. The IRS will often disallow a number of expenses when personal and business expenses are commingled in a single checkbook. (See, we told you it was bad.)
4. Less stress and more sanity
When your books are disorganized, you’ll feel constant stress to take care of it, and this can ultimately cause you to come undone. Running a business is stressful enough. Complicating your finances unnecessarily will only make it harder.
Having separate checking and hiring a bookkeeper for a new company could save you time and money in the long run. Plus, consider the price and value of having a clear head. Those who rely on your decision-making skills will thank you. Not only this, it will make the lives of your accountants easier as well, as a great bookkeeper can supplement the jobs of your accountants.
5. Improved decision-making
As alluded to above, having a separate checkbook starts the process of better bookkeeping, expense tracking, and budgeting, which leads to quality decision making. How can you expect to be a successful business owner without accurate records? Furthermore, how can you project future success without being able to see your business clearly today? When you have a clear idea of where you are, you have a clear idea of where you can go.
6. Better analysis of your business
Business analysis is the practice of inspecting the various pieces of your business to see how it’s performing overall. Proper bookkeeping can result in a more accurate analysis, which translates into an easier time assessing your business needs. If your finances are a disorganized mess, it’s hard to tell where your company needs to improve.
7. It’s easier to show your value to investors
Investors can be pretty stingy and for good reason: Investing in any business is a risk. If you’re looking to attract investors, clear and concise bookkeeping makes your company’s current and projected financial standing easier to show. Few investors will be willing to invest in a company that has messy finances.
8. General cash flow can improve
Bookkeeping goes well beyond filing your bank statements and monthly financial statements in the right folder. With a solid bookkeeping team you have a better idea of which invoices have yet to be paid, if any vendors or customers owe you money, and so on. As a result, you can look at your own processes and find areas where you can improve.
As an added bonus, your overall cash flow will improve simply because you’re more aware of where money needs to go and are spending less time sifting through your messy finances.
The perks of bookkeeping go well beyond those listed above. In short, bookkeeping plants the foundation for near and year-end financial success. You wouldn’t launch a business without a business plan, and you shouldn’t run a business without bookkeeping services.