It’s time to talk records … and no, we’re not talking about filing cabinets full of paper. We’re talking about records in terms of financial records, also known as your books. Before you hit the snooze button, let’s first talk about a few reasons why keeping accurate financial records (also known as good books) is so important.
Accurate bookkeeping allows you to make sound business decisions.
Your books keep you in touch with your business’ operations and obligations. They will also help you see problems before they occur.
Here’s just a few things good books will help you answer:
- How is my cash flow? Are vendors being paid on time? Are customers paying me on time?
- Do I have too much money tied up in inventory? Or do I have adequate inventory to fulfill sales orders?
- Do I need to purchase new equipment? Do I have the ability to purchase new equipment given the current state of my finances?
- Do I need to hire additional help? Will I be able to pay said help?
- Which areas of my business are successful? Which areas need improvement?
- Can I cut my costs in any areas?
- Am I following my budget?
- How does my profitability compare to others in my industry? (Don’t forget, profitability isn’t the same thing as cash flow)
Accurate books are critical when it comes to tax time.
Tax time isn’t so fun when you haven’t had accurate bookkeeping. After all, good books allow you to report accurate revenue, keep track of deductible expenses, calculate gain or loss on sold property and support items reported on your tax return (read, in case you get audited). All of these things are good to know and have at tax time.
Accurate financial records help others, like your bank.
Without good books, your bank won’t be able to make lending decisions for your organization. Don’t believe us? Read up on what this bank has to say.
So now that you know why it’s important, here’s a few things to consider on your record journey:
Implementing a bookkeeping system.
- Keep it simple!
- Maintain books that have the right level of detail depending on the complexity of your business.
- Make sure you have the essential information you need on a timely basis. If you don’t have access to timely information, even the most accurate records won’t help you a whole lot.
- Compare current data with historical data to check your progress. (cough benchmarking cough)
Find the right tool/partner.
As a reminder, before you make a decision regarding accounting software, make sure you understand your needs.
There several different types of software that can help you track your records. Many are cloud based accounting programs (QuickBooks, Zero, Wave, FreshBooks, Bill.com … to name a few) that allow you to access your information from almost anywhere for a small monthly fee.
If you’re not sure of how to set up your books, or you need just a little more help understanding and updating, talk to a reputable CPA firm. They can be a trusted ally on your business journey, especially if you visit them more than once a year.