Steps to Optimize Your Bookkeeping System
Successful businesses need good bookkeeping to maintain your finances, monitor budgets and stay tax compliant. Bookkeeping can make a huge difference and help your business grow. It can help maximize your business’s income as well as help you determine where you can cut costs.
Arguably one of the most important moving pieces in a small business is having a clean set of financials to help run and manage the business. To put your business on track for fast, sustainable growth, it is critical that you establish an effective recordkeeping system early on. Consider the following:
- Open a separate business checking & savings account
- Choose the right credit card & line of credit for your business
- Track & store your expenses using an efficient bookkeeping system for tax deduction purposes
Follow this guide and it will help improve your business’s financial health and will strategically plot your business’s growth.
Bookkeeping is a universal part of a business. It may not be completed in the same manner across all industries. It is undeniably a backbone to the success, growth and operation of any business. Good bookkeeping can help a growing business get funding, increase revenues and reduce overhead costs. Here are six insightful strategies that show bookkeeping can help boost your business growth.
Organization of business operations
How’s business going? This is the dreaded question you do your best to answer when you aren’t sure what your financials look like. If you maintain accurate books and records, you’ll feel confident and in a better position to answer this question when it comes. You’ll have an actual visual of how performance is going and if your business is growing. When your business books are done properly you will have more insight into your business’s strengths and weaknesses. This is important information to have if you want to expand, add new product lines, or services. Fundamental bookkeeping is one key to understanding your business. It’s also being able to make proactive decisions so that you can get back on track as changes come out.
Bookkeeping: Managing cash flow
Outside of looking at the bank balance every day, how can you know what your cash is doing? Bookkeeping can do more for your business than just generate financial statements. Keep up with your bank transactions on a regular basis. You can accurately monitor your cash flow and calculate important metrics. By doing this you know exactly how much cash you need to get through this week/month/year. When you invoice customers for sales or services and follow up on outstanding invoices you have less pending income. A business cannot be profitable if they have more outstanding invoices than the money that is promptly collected. Therefore, having a dedicated bookkeeper ensuring that invoices are paid timely can substantially increase your monthly and annual cash flow. Not only will this increase your income, but it will also reduce complex financial situations from uncollected service fees.
Audit protection
Let’s say that your firm receives a notice of an audit. You can rest assure that you’re well prepared to turn over financials and your records. Having accurate and up to date books will ease the stress of the audit process. Bookkeeping can help streamline the process for your business or CPA. They will know where the numbers come from that went into the tax preparation. The investment in accurate financials will pay off as the average audit process requires an additional 60+ hours of your bookkeeper’s time if they are not well-kept. So save the stress and start your financials and establish a good bookkeeping system.
Staying tax compliant with your bookkeeping
Did you receive a tax notice in the mail? Can’t remember yesterday, let alone a month ago when you were sure you paid that bill? We have all been there. If your bookkeeping is up to date and you are tracking transactions, you’d know for sure if that payment went out and when and how it was sent. On the flip side of it, if your books are disorganized, it can cause significant stress. Managing vendors and accounts can be stressful enough; add to the mix the day to day tasks of keeping your financial obligations in order can put you on overload.
Not complying with the IRS can result in huge fines and penalties, not to mention headaches and sleepless nights. If your books are up to date you can accurately calculate any tax due and easily track payments when they are paid or when they go out. Have a developed bookkeeping strategy as it allows you to keep adequate records, save you money on your taxes and help avoid unnecessary tax penalties. Focus on what you excel at and let a bookkeeper do what they do best.
Getting funded
If at any point you realize you need additional capital, you will need a good bookkeeping system. This will help highlight the positive aspects of your business and show where you need to put money to improve your overall success. This could open the doors to prospective investors and ultimately increase the growth of your business. Investors like raw and unflawed data. They expect to have all of the details when making a decision. If the books are clear and concise, investors are more apt to want to get involved. The last thing they want to embark on is a journey of unknown risk. They would rather walk away and pursue other ventures than get involved in an uncertain set of books. However, they will undoubtedly be impressed by a small business who knows where every penny has been spent or received.
Measuring profitability
Without tracking your transactions and properly bookkeeping, your measure of profitability could be skewed. Without knowing how much money has been spent in each expense category, it would be extremely difficult to know which business sectors to improve on and you can’t measure any area of your business accurately. A trusted advisor will have trouble assisting you with business decisions unless they see a complete set of financials. Overall, good bookkeeping will help you manage and keep track of all your incoming and outgoing money. In addition, knowing your profitability will help you determine if you should make important business changes. Bookkeeping is good for any business and should be considered a necessary cost of doing business.
At Molen & Associates, we want to see your business thrive. We bring the right talent to the table to give you the confidence and speed you need to grow.
Susan Claybrook
Client Liaison, Accounting
