As a business owner, it’s your duty to ensure that your business keeps accurate records of financial transactions. Not only is this important for tax purposes, but it also helps you keep track of the overall financial health of your business. If this isn’t done, there is a high possibility that your business could run into chaos. In this article, we will be dealing with the reasons why bookkeeping for small businesses is important, the best bookkeeping tips that a small business can employ, and how hiring professional accountants can help businesses to achieve that role effortlessly. Continue reading and find out!
Why Book Keeping For Small Business is Important
The importance of small business bookkeeping cannot be underestimated. Here are 10 reasons why maintaining proper books of accounts is necessary for your business.
1. Aids in decision making
In business, proper decision-making can only be possible when there is accurate data. There are no meaningful decisions without reliable numbers. Bookkeeping helps in providing the necessary data for decision-making, such as sales trends, expenses, and profits.
2. Helps track performance and progress
Bookkeeping can also help businesses track their performance and progress. This includes identifying areas that need improvement and recognizing potential growth opportunities.
3. Meets legal requirements
Keeping accurate books is also important in meeting legal requirements and avoiding penalties. Businesses are required by law to keep accurate financial records for tax purposes and other legal obligations.
4. Helps secure financing
If your business is applying for a loan or looking for investors, having proper bookkeeping can help make your business more attractive as it shows organization and responsibility. Lenders and investors want to make sure that their money is in good hands.
5. Avoids fraud and theft
Proper bookkeeping can also help prevent fraud and theft within the business. It allows for easy identification of any anomalies or irregularities in financial transactions.
6. Facilitates efficient tax filing
Accurate bookkeeping is essential in preparing for tax filing. This helps in avoiding penalties for errors or missed tax payments, as well as maximizing deductions and credits.
7. Helps identify expenses
Bookkeeping can also help businesses identify expenses that may be cut or reduced in order to improve profitability.
8. Facilitates financial planning and budgeting
Accurate bookkeeping is necessary for effective financial planning and budgeting. It allows businesses to set achievable targets and allocate resources properly.
9. Facilitates business growth and expansion
Having accurate financial records can also facilitate business growth and expansion as it helps in assessing the capability of the business to handle larger operations.
10. Helps maintain good supplier relations
Proper bookkeeping also helps businesses maintain good relationships with suppliers by ensuring that payments are made on time.
How To Keep Financial Records For Small Businesses
It is for the good of every business owner to maintain proper books of accounts, but how exactly can small businesses go about doing that? Here are 12 important tips:
1. Set up a system and stick to it
The first step in proper bookkeeping is setting up a system and consistently following it. This includes determining the frequency of recording transactions, as well as establishing a filing system for documents and receipts.
2. Keep all financial documentation
Make sure to keep all financial documentation such as invoices, receipts, bank statements, bills, and other financial records. These documents serve as evidence of transactions and will be necessary for preparing tax filings and making decisions.
3. Separate personal expenses
It is important to keep personal expenses separate from business expenses to avoid confusion and ensure accuracy in financial records. This can be done by using separate accounts and credit cards for the business.
4. Hire a professional accountant
If necessary, small businesses can also hire a professional accountant to handle their bookkeeping and provide expert advice on financial matters. This can save time and ensure accuracy in financial records.
5. Use accounting software
Using accounting software can also make bookkeeping easier and more efficient for small businesses. This technology can automate tasks such as recording transactions and generating financial reports.
6. Keep track of expenses and income
Make sure to regularly record all income and expenses in the accounting system to ensure accuracy in financial records. This includes not just big purchases, but also small daily expenses.
7. Stay organized
Maintaining organization in both physical and digital documents can make bookkeeping much easier and less time-consuming. This includes regularly updating and filing documents, as well as backing up important data.
8. Understand financial statements
It is crucial for small business owners to understand financial statements such as the balance sheet, income statement, and cash flow statement in order to make informed decisions about the business’s finances.
9. Stay on top of taxes
Make sure to stay on top of tax payments and filings to avoid penalties and other legal issues. This includes understanding the applicable tax laws and keeping track of deductible expenses.
10. Seek professional advice
When in doubt, don’t hesitate to seek advice from a tax expert or financial advisor. They can provide expert guidance on all matters related to financial recordkeeping and help ensure the success and profitability of the business.
11. Keep personal and business finances separate
It’s important to keep personal and business finances separate to avoid confusion and ensure accuracy in financial records. This can be done by using separate accounts and credit cards for the business, as well as maintaining clear documentation of any personal funds used for business purposes.
12. Leave an audit trail
Make sure to properly document all financial transactions and maintain records in case of an audit. This includes keeping receipts, invoices, bank statements, and any other relevant documentation.
Proper bookkeeping is essential for small businesses in terms of making informed decisions, improving profitability, facilitating growth and expansion, and maintaining good relationships with suppliers. By following these tips, small businesses can effectively manage their financial records.
The Need To Hire A Professional Accountant
To make things easier for you and your business, it’s necessary to consider outsourcing your bookkeeping and hiring a professional accountant. An accountant can handle all of the financial tasks for your small business while also giving expert advice on financial matters. This not only saves time but also ensures accuracy in financial records.
Additionally, a professional accountant can help with filing taxes and staying on top of tax payments to avoid penalties and legal issues. They can also provide guidance on financial decisions and contribute to the success and profitability of your business.
When it’s time to deal with refunds from the ATO, an accountant can handle communications with the government for you, making the process smoother and less stressful.
Overall, hiring a professional accountant can greatly benefit your small business in terms of managing finances and ensuring accuracy in financial recordkeeping.
Keeping proper accounting records is important for small businesses in terms of making informed financial decisions, maintaining profitability, and staying compliant with tax laws. By staying organized, understanding financial statements, and seeking professional advice, small business owners can effectively manage their bookkeeping. Additionally, outsourcing to a professional accountant can provide expert assistance and make financial tasks easier for the business. Overall, proper bookkeeping is essential for the success and growth of a small business.