In an era where small businesses are making huge strides in the corporate world, bookkeeping is going to be the next big thing! Now more than ever, people want to make an impact. They have an idea that could make a process easier or more efficient and they are turning their idea into a business. Along with the rise in small businesses, larger companies in corporate America are also under more pressure than ever to keep business booming. Businesses large and small are going to need strategies to ensure their company stays relevant in a market full of competition and bookkeeping can be the key to that success.
What is Bookkeeping?
Bookkeeping is a branch of accounting that records financial information for a business. It focuses on the day to day transactions and balances of a business and sets a foundation for the company. In order for any business—large or small—to be successful, the business expenses must be properly recorded and maintained to make important financial decisions. Below are a few common types of documented transactions used in bookkeeping to ensure the business is running financially smooth:
- Billing Invoices-Anytime a service has been rendered to a client or a third party business, sending an invoice to be compensated for the service is crucial. By having a bookkeeping process in place, you can easily send out these invoices and keep track of when or if the bills/invoices have been paid.
- Record Expense Receipts-Any purchase for the business should be properly documented. Business expenses typically include but are not limited to office supplies, travel or mileage purchases, or meals. By properly documenting business expenses, you will know how much money is outgoing versus incoming, but more importantly, you may be able to get deductions when filing for taxes.
A. In order to ensure your deductions are approved by the IRS, it is important to keep all of your invoices or receipts for expenses as well as note the business purpose on the receipt. This can help eliminate possible questions from the IRS regarding certain expenses.
- Logging Credits and Debits-The bills of the business such as annual fees, supplier contracts, leases/rent, or payroll services should all be properly documented in a ledger or bookkeeping software. Business credits should also be recorded in the same ledger or software to compare the amount of money coming in versus going out. By visually seeing your bottom line, you can learn where the company stands financially.
Who Needs to Use Bookkeeping?
Every single company, whether a small start up, or a large Fortune 500 business needs to use some form of bookkeeping to maintain their day to day financials and understand the performance of the business. Without proper bookkeeping a business can make poor financial decisions and lose money. Having an organized bookkeeping process can also assist in the long run when a business files taxes at the end of the year.
The Importance of Bookkeeping
As previously mentioned above, bookkeeping isn’t just important for a business, but it is essential to be profitable. In order to know the success or opportunity of a business, you have to look at the numbers. Bookkeeping can assist a business in:
- Budgeting-By having a budget in place, you can better prepare for future costs the business may face and make a strategy to pay for those upcoming expenses.
- Organization-Proper bookkeeping allows a business to stay organized financially. You will be better equipped to file taxes at the end of the year if your income and deduction information are all in one location. By staying organized, you can also provide financials to clients, employees, or shareholders.
- Financial Literacy-Bookkeeping will allow you to get an overall picture of the business and its successes or perhaps the areas of opportunity. By seeing what is working versus what isn’t, you will be able to make more educated decisions and strategies. Bookkeeping will also give you a clear picture of debits and credits to the business and where the company currently stands financially.
- Analysis-If expenses and incomes are properly recorded, a bookkeeper or bookkeeping software can make financial reports which can show you where your best and worst areas are financially. Based on the information received from these reports, you can analyze which areas of revenue need to have a new strategy put in place and which ones are successful.
- Security-As a business owner, having financial security is just as important as being successful. Proper bookkeeping will allow you to understand the ins and outs of your business and plan ahead. By planning ahead, you will be prepared for large expenses and better equipped to handle hiccups when things go wrong.
By knowing where your company is at financially, you can make more informed decisions to increase profits and revenue. It is important to have a trusted source of bookkeeping and depending on the size or type of business you have may depend on the best course of action to take. The most common bookkeeping options are to hire an accountant or bookkeeper or to manage the books yourself using an accounting software. Because you can’t put a price on good bookkeeping, it is important to evaluate which method would work best for you and the business.
Money talks. That’s what they say at least, right? But when it comes to managing a business, it is important to hear what your money is trying to tell you. Proper bookkeeping will allow you to make important financial decisions to be successful. If budget cuts are needed, or perhaps you have a surplus of funds due to a successful quarter, bookkeeping will be the way to discover this. Because managing business funds is so essential, bookkeeping will be the next big thing to help you put some extra cash in your pocket.