We've put together a guide highlighting the importance of bookkeeping and provided some small business bookkeeping tips and insight from a professional in the industry.
Enough good things cannot be said about bookkeeping. It is love. It is life. It is the end-all, be-all of good business decisions and operations.
If you're starting to panic about your bookkeeping competence, then you've come to the right place. Read on to learn small business bookkeeping tips: what it is, why it's important and tips on how to do it.
What is bookkeeping?
If you take away one thing from this crash course in bookkeeping, please let it be this sentence — bookkeeping is the REGULAR recording of EVERY financial transaction.
Bookkeeping provides a reliable measure of your small business’s performance and lets you see where you're spending money, acquiring money and which tax deductions to claim. It is crucial in making internal and external operating, investing and small business financing decisions.
We are luckily fully immersed in the digital age and no longer have to rely on manually recording in a physical set of books — unless you really want to... to each their own.
Why is it important?
Improper and incomplete bookkeeping will result in financial, legal, professional and probably personal demise — graphic, I know.
Here is a deep dive into specific reasons to make sure your bookkeeping needs are met.
1. Helps Budget
Budgeting. Something I'm sure most of us could use more of in our personal finances. With that said, when it comes to small business budgeting, not knowing what your financial situation is regarding income vs. expenses will lead to trouble.
Enter small business bookkeeping.
A business will thrive if the small business owner can quickly assess their financial position on a regular basis. Three of the most common financial statements that are prepared through the bookkeeping process include:
- Balance sheets
- Income statements
- Statement of cash flows
These three financial statements provide insight that allows for proper budgeting around capital purchases, working capital and other cash needs that may impact your business.
2. Tax Preparation
Proper organization of business earnings will make filing tax returns and combatting IRS audits easier because you won't be scrambling to find old invoices or committing tax fraud with misinformation. Thorough bookkeeping will allow your small business to move from checkbook accounting to a process that ensures that your deductions don’t go missing
3. Strategic Planning
Business growth doesn't come naturally, so how can new ideas and tactical planning be implemented when you're too busy trying to get your finances in order? Your bookkeeping can be a tool to developing new ideas and long-term goals —goals that can then be tracked and adjusted through your bookkeeping cycle.
Related Reading: What SBA Loans are available for Minnesota Businesses?
4. Attracts Investors, Keeps Your Banker Happy
Investors need to know the financial performance of your small business to determine if they would like to get involved A.K.A. help you grow.
But that's not all...
It is also a requirement of any good banker. Good bookkeeping provides your bank with more data and information to demonstrate your business’s success and provide more support along the way.
5. Builds Relationships
If you were asked today who your best customers are, could you support it with data? Good bookkeeping allows you to assess who your frequent and high spending customers are and keep track of vendors and make timely vendor payments.
A good bookkeeping process allows you to measure what matters, invest in growing a profitable customer base and more effectively manage your small business’s vendor relationships.
Tips & Tricks
We asked Flagship's AVP Accounting Officer, Mitchell Steckler what his biggest small business bookkeeping tips.
Stay on top of things. Falling behind or procrastination can lead to mistakes or something getting missed and risk financial loss. Playing catch up is also time consuming.
Have a second set of trusted eyes to, at least, periodically double check things. Failure to record revenue, missing payments, not making proper tax adjustments, payroll errors, etc. could cause damage to relationships with suppliers, customers, employees and legal problems.
Learn all features of your software and utilize it as much as possible. This will help reduce stress as well as help streamline the process.
Here are some bookkeeping software platforms we recommend:
You don't need a bookkeeper on staff to accurately track your expenses and income. But you do need a willingness to learn, dedicated time and interest in letting your small business flourish.
Looking for more help on bookkeeping for your small business?
