10 Ways Bookkeepers Help Save Businesses Money

how can a bookkeeper help save me money, importance of bookkeeping, ways bookkeepers help save businesses money, What is Bookkeeping?, What is the Purpose of Bookkeeping, bookkeeping services

There’s an age-old adage: time is money.

One of the greatest ways to grow your business is to have the time available to spend nurturing it. Being able to clear up as many daily time sinks as possible will free you to develop your company, find new clients, and discover new and efficient ways to run your business. Innovation is crucial to overcome competition and draw new clients, so being able to dedicate yourself to new ideas is the life’s blood for your agency.

An easy way to make this happen is to outsource your bookkeeping to a trusted agency, which can not only save you an enormous amount of time but can also save you money in many ways.

Here are 10 ways that calling in a professional bookkeeping service can save your business money.

Professional Efficiency

Bookkeeper agencies have spent years (or even decades) specifically handling records, and they know how to do it in the least amount of time possible. They’re up to date with the most proficient methods to ensure that everything is done in an orderly and efficient way.

As they are well versed in legal processes and are adept at performing the job, you will not have to worry about facing penalties due to failures to meet financial deadlines.

Also, these services will spend far less time working on accounting than an employee who is not as well-versed in the realm of bookkeeping. You can end up saving money simply by cutting down on the costs due to the extended time an employee could spend trying to accomplish the same tasks.

With those responsibilities taken care of, that employee could be used somewhere else, which can allow you additional resources for other projects.

Accuracy

Errors can cost a lot of money and the less qualified a person is, the more likely they are to make mistakes in the books. Incorrect financials skew the value of your company and can cause you penalties and other detrimental results if the errors are not discovered. If they are, that’s more time spent researching and making corrections.

Professional bookkeepers are elite at their craft and are unlikely to make costly mistakes. When you put your trust in the experts, you will be able to bank on accuracy and ensure legal qualifications for your accounts.

Payroll Savings

As you won’t need to hire part-time (or full-time) help to maintain your books, this can save you on hourly wages. Plus, you won’t have to worry about providing benefits or other necessary expenses since you are not covering accountants.

You also have a variety of payment options with these companies and can choose if you want to do hourly rates or a fixed amount for services provided. That means you only pay for what you actually need and nothing more.

Productivity Benefits

With the saved time-expenditures a bookkeeper provides, you and your employees will have more time to focus on other projects, which can have mental health benefits. With less multi-tasking required, employees suffer less fatigue and make fewer mistakes and increase their job satisfaction.

Focusing on a small number of tasks means that those tasks can be done more efficiently and with increased results, which will help your company meet its goals and reach a broader audience as you can spend your time where it matters the most.

Versatility

You aren’t required to give over every aspect of your accounts if you do not want to. You can opt-out of specific aspects and pick and choose which services you wish for the bookkeeper to provide. That way if you want more control over what is happening with your finances, but still want to save time and money on some arduous tasks, you can pick a plan that works for you.

Flexibility

As business waxes or wanes, you will find that you will have more or less time. In situations where you have less time, the bookkeeping services can prove invaluable. If, however, you are experiencing a slow period, you can take over your accounting again to save on costs.

The ability to determine when you need the services and when you don’t can help you remain flexible to keep your costs down and provide the best budgeting for your business during peak and slow periods.

Shopping Around

While outsourcing is more cost-effective than having a full-time employee handle the same work, you can also take advantage of shopping around to reduce costs on your professional bookkeeping.

Compare prices and negotiate with bookkeeping services so that you can save even more money by working out a deal that fits your budgets and finding a reputable service that will work with you on whichever features you wish. There is a multitude of options that provide different services, so you can find what you need at a cost that works for you.

Technological Savings

Keep in mind that while your business may not be able to afford top-tier bookkeeping technology, professional bookkeepers can. They will be using the top tools of the trade which can provide you with incredible statistical information and improved details on your finances.

Not only will you save money by the time spent, but you will receive the highest quality data and save money since you will not need to purchase the high-level technology to enjoy the same results.

Security

As professionals, these bookkeepers have taken steps to provide optimum security for your data. As you are not placing sensitive data in the hands of regular employees, who may or may not prove trustworthy, your financial data will be safe and unlikely to face risks that can come with placing secure data in the hands of others.

They will also have high-quality protection software to keep your data safe from cyberattacks, so the added security in itself is an added bonus that saves you money and peace of mind.

Tax Benefits

With a bookkeeping service’s accuracy, attention to detail, and legal proficiency, tax time will be a smooth and easy process. Putting the responsibility in the hands of someone who deals with taxes all the time and knows what they’re doing will ensure that your company gets its taxes done in time and with alacrity.

We hope you enjoyed our article about the ways bookkeepers help save businesses money and how important they can be for the success of your business. MY OC Bookkeeper has the experience and expertise to help you with bookkeeping and business advisory services. Make sure to contact us here for a free consultation.

What is Bookkeeping, and Why is it Important for Business?

Bookkeeping and Taxes, Does My Business Need Bookkeeping, What is Bookkeeping?, What is the Purpose of Bookkeeping

What is bookkeeping?

Bookkeeping is the procedure of recording a business or company’s financial transactions on a regular basis. One of the key aspects of bookkeeping for your business is managing a general ledger. Keep in mind that this is the main document where bookkeepers maintain all their records, receipts, and expenses.

Bookkeepers or business owners record data of business activities by checking the supporting documents and following the company’s accounting principles and standards.

Note that these documents can be receipts, bills, purchase orders, invoices, or financial reports that can give you records of transactions. Based on your needs and requirements, you can store data in Microsoft Excel or a journal.

However, due to modern technology and the growing need to maintain data, it’s best to use bookkeeping software to minimize various risks.

Plus, saving all the accounting data in cloud-based bookkeeping software minimizes the risk of losing data in the future. The best part is that business owners can check the financial records of their business at any time they want.

Importance of Bookkeeping

Whether you have a small startup or a massive corporation, the importance and significance of bookkeeping can’t be ignored. Proper bookkeeping is important for your business as it gives companies a reliable and dependable measure of their profitability and performance. And it also offers information to make key strategic decisions.

Helps You Budget Accurately

This process of storing your data is important for your business because it helps you create your budget. When your expenses and income data are appropriately organized, it will be easier for you to review your costs and financial resources.

Keep in mind that a budget develops a financial roadmap for your company. If you know your monthly or yearly budget, you can determine which expenses you will likely incur so that you can act accordingly. Moreover, if you don’t maintain your books, it will be challenging for you to estimate expenditures.

Makes Tax-filing Simple

We all know that tax preparation can be a challenging and tricky task, especially for small businesses. But it should not be. You will understand the importance of bookkeeping when the tax season comes.

Instead of finding receipts and checking each document in the pile of papers, bookkeeping ensures that you get the information you need in an organized way. Bookkeepers prepare invoices and other documents required for taxes beforehand. This way, you will know any possible tax write-offs and prepare your tax return in less time.

Meets Government Regulations

The state or national government establishes new laws and regulations every now and then, aiming to make taxing businesses and other tasks easier for them. When your records are maintained precisely and accurately through the bookkeeping process, you will not struggle to comply with the laws.
All you need is to have the right information about the company’s finances, which you need to use according to government laws.

Additionally, a trained and experienced bookkeeper can help you follow government rules and laws, as it can be hard for you to understand the regulations.

Bookkeeping and Taxes, Does My Business Need Bookkeeping, What is Bookkeeping?, What is the Purpose of Bookkeeping

Protect Small Businesses in an IRS Audit

You need to understand that the IRS can audit small businesses, even if they are fully compliant with the laws. Well, only 2.5% of companies are audited, but you never know when you might have to get audited. Bookkeeping can protect you from IRS fines and penalties.

Well-maintained and accurate books can give answers to all the questions the IRS may have. They can easily determine your losses, income, tax deductions, product prices, and other things from the recorded data.

Helps with Business Analysis

Analyzing your business and its profits, loss, capital, and other things are crucial to estimate its value in the future and make strategies. Bookkeeping is the best procedure that helps you analyze your business whenever you want. You can say that it is a tool that enables you to understand your business performance and profitability.

Furthermore, the most important part of the bookkeeping procedure is preparing financial statements. You need to regularly prepare financial statements so that you can use them for analysis and reporting purposes.

Also, bookkeeping offers you information about which business lines or segments are not operating profitably. Analyzing your company through this method will help you focus on your business’s strengths and work on its weaknesses.

Provides Better Cash Flow Information

Recoding expenses, revenues, receivables, and liabilities regularly allows you to track how much money you have paid your vendors and when your customer invoices are paid.

It is important to pay customer invoices on time. On the other hand, you should pay vendors’ invoices on 3time to prevent penalties and late fees.

Moreover, bookkeeping helps you improve your cash flow by giving your information about your invoices, such as issue date, vendor or customer name, due date, and amount. You can use this information for creating cash flow policies.

Bottom Line

While bookkeeping is an important procedure for any business, not many business owners have the ability, time, and skills to do it on their own. In other words, bookkeeping requires an understanding of accounting procedures, taxes, state regulations, and business goals. Only a trained and qualified bookkeeper who knows bookkeeping can store your data and prepare your financials securely and accurately.

We, My OC Bookkeeper, offer you a broad range of bookkeeping services, such as power BI modeling and financial modeling that help you access organized and well-maintained data. Our team of experts uses modern techniques to record your company’s financial information. Contact us here for more information.

On top of that, we help you file taxes, so you never have to deal with these challenging tasks on your own. So, are you ready to learn how you can improve and strengthen your business with reliable bookkeeping services? Schedule a consultation right now.

Sources

https://lyfeaccounting.com/blog/bookkeeping-is-important/

https://corporatefinanceinstitute.com/resources/knowledge/accounting/bookkeeping-definition/

https://quickbooks.intuit.com/r/bookkeeping/what-is-bookkeeping/

https://www.easybooksapp.com/blog/reasons-why-bookkeeping-is-important-for-your-business

https://www.nationalbusinesscapital.com/importance-bookkeeping/

Why Bookkeeping Is Important for New Businesses

Why Bookkeeping is Important for New Businesses

Why Is Bookkeeping Important for New Businesses?

When starting a new business, it is easy to get consumed with the ‘exciting’ parts of the project: designing a product, coming up with sales strategies, marketing, hiring employees, etc. However, there are integral ‘behind the scenes’ parts of running a business that sometimes get overlooked when starting out. One of these is bookkeeping. Read on to see why bookkeeping is important for new businesses.

Bookkeeping may sound interesting to the math enthusiasts of the world (yes, they do exist!) but to everyone else, especially during the exciting early days of a startup, it may seem dull and get overlooked.

Unfortunately, if keeping track of your company’s financials isn’t prioritized, it can cause significant complications down the road. To position yourself to succeed, don’t let bookkeeping become something that you put off.

Accounting and Bookkeeping Help Businesses to Manage Their Cash Flows

Managing cash flows is hugely important for new businesses and proper bookkeeping practices can help you to prevent many cash flow problems before they start. By keeping track of all of your outstanding accounts receivable and accounts payable, for example, you can make sure that you will have sufficient cash to satisfy any upcoming obligations. If you anticipate more accounts payable (i.e. bills) than accounts receivable (i.e. revenue), then you had better make sure that you have sufficient cash and/or credit to satisfy your upcoming financial obligations or you may find yourself in trouble.

Similarly, by properly tracking and managing your accounts payable you can increase the probability that you will pay them on time. (Forgetting for the moment the larger problem described above.) This will help you to maintain good relationships with your vendors, keep your credit in good standing, and minimize your interest payments – all good things for a new business to do.

Then there is the classic business school problem of growing so fast that you run out of cash. How does that work? It’s really pretty simple. When you grow really fast you have a lot of orders, projects, contracts, etc. In order to satisfy them you must spend money. In order to satisfy a lot of them you must spend a lot of money.

Generally speaking, you have to spend the money to complete the work before you get paid for it, and if you are doing too many projects or making too many widgets you can run out of money before that happens. Imagine, for example, you receive 1,000 orders for razor blades you are making – far more than you ever dreamed you would receive. You start to make them and then run out of money after only 200. It’s possible you might be able to get a loan of some sort, but even so, that creates delays and costs money. Loans notwithstanding, this situation can lead to angry customers, angry vendors, new costs, and even the end of your business entirely.

Proper bookkeeping and accounting can help prevent this situation altogether by enabling a business to model out the costs associated with incoming orders and make sure that it has enough money to complete them. If not, than it may be time to slow down the growth.

Bookkeeping Enables New Businesses to Manage Their Cash Flow

Accounting and Bookkeeping Help Businesses to Keep Their Tax Bills Down

Taxes are hugely important for new businesses and if not properly managed they can greatly decrease your profits and even kill you off completely. (Just ask the countless new marijuana businesses that have learned this the hard way…) For one, you don’t want to miss out on any deductions that you can begin tracking now. If you don’t know about them until tax time you may not be able to go back and figure out how much to deduct. Mileage is a good example. If you can deduct mileage than be sure to keep track of every business mile from day one. (There are some great apps to help with this.)

Likewise, if you don’t keep good bookkeeping records from the beginning you will have a major headache come tax time. This will at the very least cost you a lot of time and may also cost you a lot of money. It takes a lot more work to figure out where you spent your money six months ago than it does to get it down when it happens. This means more effort trying to remember things on your part, more time and money spent by bookkeepers trying to get everything organized, and a greater chance there will be costly mistakes. As an added bonus, bookkeepers may charge you a hefty premium for taking up a great deal of their time during their busy season.

Another common problem is failing to make reasonable quarterly tax filings. Making such filings is a requirement for many businesses and doing them poorly, or not at all, can result in costly penalties and more money down the drain.

Financial Statements Help Businesses to Better Understand Their Operations

Another benefit of keeping your books in order: financial statements. The basic financial statements (income statement, balance sheet, and statement of cash flows) are extremely useful tools for describing how a business is functioning. (There is a reason they are central parts of annual reports.) They tell you in detail how your business is doing, what kinds of problems may be on the horizon, and fuel strategic decision making. (If you want to learn more about financial statements check out our blog on the income statement here, and our blog on the balance sheet here.)

If you don’t maintain your books there is simply no way to create your financial statements. If the financial statements were a building, monthly bookkeeping activities would be the bricks.

Maintaining Your Books Fuels Strategic Decision Making

Running a new business involves making important decisions on a regular basis, and informed decisions tend to be far more successful than uninformed decisions. Keeping your books in order can provide you with key information that can be useful in this regard. Say, for example, two clients call up with desperate pleas for some last second service. Unfortunately, you only have time to help one. Which one do you choose? If you have kept your books in order you can see which client has provided you with more revenues, and this may be the deciding factor. There are a myriad of possible situations like this where well organized books can provide you with valuable insights.

Bookkeeping Enables New Businesses to Engage In Strategic Business Planning

So, if you are starting a new business heed our warning: keep your books in order from day one. If your business succeeds you will need to get them in order eventually, and you will be better off starting now. Or, if your business doesn’t succeed, not having good books may have been one of the central reasons why.

There you have it. Key reasons why bookkeeping is important for new businesses. Interested in learning more about bookkeeping and accounting? Take a look at My OC Bookkeeper’s great bookkeeping and accounting blog or their bookkeeping, accounting and business strategy YouTube channel. Interested in hiring an outside bookkeeper, accountant, or business consultant? My OC Bookkeeper is here for you. We help businesses all over the country to tackle problems big and small. Click the video below to learn more. Let’s do great things together!

Advantages of Hiring an Outside Bookkeeper – 2018

Advantages of hiring an outside bookkeeper

What Are the Advantages of Hiring An Outside Bookkeeper?

Business owners often wonder what the advantages of hiring an outside bookkeeper are. The answer is simple: there are a lot of advantages. Take a look below to see My OC Bookkeeper’s list of some of the most important benefits of hiring an outside bookkeeper. The advantages listed are: lower costs, decrease turnover, keep your focus on what you do best, make sure your books aren’t biased, flexibility, elimination of distractions and expertise. Read on to learn more!

Lower Costs

One of the most important keys to business success is keeping costs down. Whether you are a brand new startup or a seasoned company, low costs are central to success. Hiring an outside bookkeeper can be an excellent way to do just this. Unlike with a full time in-house bookkeeper you don’t have to worry about paying payroll taxes, benefits, or paid vacations. Nor do you have to commit to a full time (or even part time) employee salary and if cash is temporarily low can potentially briefly delay bookkeeping operations. (Although we certainly don’t recommend doing so for too long. In fact, situations like this are a perfect time to discuss strategy with us!)

Outside Bookkeepers Lower Your Costs

Decrease Turnover

The unfortunate reality is that employee bookkeepers tend to come and go often, creating a high level of staff turnover. This can be problematic for many reasons: the cost of repeatedly on-boarding and training new employees, a negative impact on morale, labor shortages, and an inability to complete the desired bookkeeping tasks in a timely manner. Imagine, for example, if your bookkeeper left just before tax season! This would be a colossal headache. Working with an outside bookkeeper can help you to avoid all of these issues. Rather than working with an employee you are working with a company, and good bookkeeping companies are around forever. Don’t be surprised if your bookkeeping company is still going strong when you are ready to retire.

Keep Your Focus on What You Do Best

Running a small business can be an exhausting and challenging exercise. (Not too mention incredibly rewarding.) Sometimes there is a temptation to take on everything yourself but this can cause problems when you have too much work and / or are doing things you don’t really understand. Issues like this can cause real problems come tax time, and on some occasions can compound other problems to really put you in a bind. A great way to avoid this is to hire an outside bookkeeper so that you can focus on what you do best. Or, another option would be to hire a bookkeeping company to provide you with some formal training. Either way, properly designating responsibilities is crucial for business success.

Make Sure Your Books Aren’t Biased

Sometimes it can be problematic for an owner, or someone with a vested interest in a company to handle the books. There can be subjectivity in managing books, and it’s important that whoever is taking care of them won’t be influenced by anything but getting them right. Emotional attachment to the business, for example, can cause people to either interpret things incorrectly or make what an unbiased individual may consider to be an error. Unintentional errors made without emotion can also cause problems. If one of the partners makes a mistake then there may be accusations of misconduct which can create a toxic work environment.

Advantages of an Outside Bookkeeper

Flexibility

This is related to lower costs but worth mentioning on its own. When you hire an outside bookkeeper they can expand their workload or decrease their workload overnight. This gives you an incredible amount of flexibility that can be extremely valuable. When you have a bookkeeper on staff, changing their workload is generally a long term commitment with significant lag time. If you convert a part time employee to a full time employee because the workload has gone up, converting them back to part time status can be extremely problematic. Likewise, telling a full time employee to take a week off unpaid is never good. When you work with an outside bookkeeper you don’t have to worry about these issues.

Elimination of Distractions

Onsite bookkeepers often get pulled into tasks unrelated to their official positions. In some cases this can cause inefficiencies and problematic work flows. By working with an outside bookkeeper you can be confident that your bookkeeper with be entirely focused on what they are supposed to be — bookkeeping.

Expertise

While there are many great internal bookkeepers out there, they rarely hold as much expertise on as wide ranging accounting topics as an outside company. Bookkeeping companies have various employees with various kinds of expertise, and work with all kinds of clients. They also may have managers and owners with expertise of their own. This enables them to help you on a wider range of issues than an internal bookkeeper usually can. At My OC Bookkeeper we can help you with everything from day to day bookkeeping to developing advanced financial models. It’s not likely that you will find an internal bookkeeper with that level of expertise.

Do you agree with the advantages of hiring an outside bookkeeper that we have noted? Does that mean you are looking for a great outside bookkeeper? My OC Bookkeeper is Orange County, CA’s best bookkeeping, accounting and tax specialist. We partner with great businesses all over Southern California and the world. Reach out to us and let’s do great things together.

Did you enjoy the blog post? Check out My OC Bookkeeper’s blog, the best bookkeeping and accounting blog in Orange County, CA. Prefer videos? We have some great videos on accounting, bookkeeping, and business on our YouTube channel. Or, just reach out to us here.

Want to learn more about the advantages of using outside bookkeepers and the services that My OC Bookkeeper offers? Take a look at the video below.

Basic Bookkeeping Categories

Bags filled with different colored beans symbolic of the categories bookkeepers use.

Bookkeeping Categories

Bookkeepers do more than simply keep track of profits and losses. They record every financial transaction related to an entity.  It is only with these records that business owners and accountants can analyze the overall well being of a company. Because there is so much varied activity related to a business on any given day, staying organized is paramount to a company’s success, and subsequently, one of a bookkeeper’s most important roles. How do they do it? With bookkeeping categories, that’s how.

All bookkeepers use the same five bookkeeping categories to keep transactions organized. Because all bookkeepers use these same designations, it creates a universal language wherein anyone who understands bookkeeping can judge the financial health of a company. Each category is important for understanding the financial picture of a company.

Profit & Loss Account

The five categories bookkeepers use are assets, liabilities, equity, income, and expenses. These five categories are then divided in two accounts. One of these accounts is called a profit/loss account (also known as a income statement). This account tracks the total amount of revenue coming in versus going out, or in other words, how much money you are making. (Things get a little more confusing with accrual accounting, but most small businesses use cash accounting.) It is made up of income and expenses. Income refers to any revenue coming into the business. This can include product sales, services, consulting income, etc. Expenses refer to the things you pay for in order to keep the business running. This includes payroll, rent, utilities, or any other overhead expense. The purpose of a profit/loss account is to determine your net income (profits). In order to achieve this, you simply subtract your overall expenses from your overall income.

 

Income               –Expenses                            =Net Income
Examples:

product sales, services, consulting income etc.

Examples:

payroll, rent, utilities

Total profits

Balance Sheet Account

Just because your income statement says you’re making lots of money doesn’t necessarily mean that your company is stable.  This is why you also need the three remaining categories. They can tell you a lot about the financial health of your company. These remaining categories are assets, liabilities, and equity. They are grouped into what’s known as your balance sheet account. Your assets are everything you OWN or have the rights to. Some examples you would file into the assets category include bank accounts, cash, accounts receivable (what customers owe you), inventory, and equipment, just to name a few. Your liabilities are the things that you OWE. This would include accounts payable (unpaid bills), credit cards, loans, sales tax payable, etc. Finally, your equity is what the business is worth in a given moment in time. This would include your capital investment (your original investment), retained earnings (remaining profits), and shareholder contributions. When you add your total liabilities to your total equity, it should equal your total assets. This is why it’s called a “balance” sheet account.

 

Liabilities      +Equity           =Assets
Examples: accounts payable, credit cards, loans, sales tax payableExamples: capital investment, retained earnings, shareholder contributionsExamples: banks accounts, cash, accounts relievable, inventory, equipment

 

Asset Liability Ratios

The best and easiest way to determine the financial health of your business is through your balance sheet account. A healthy business has a 2:1 ratio of current assets to current liabilities. Your current assets are assets that will be converted into cash within the next 12 months. Similarly, current liabilities are bills that are due within twelve months. For example, if your current assets total $20,000, and your current liabilities are $10,000, you have a healthy business. If you have a higher ratio, say 3:1 or even 10:1, it may be time to consider investing, or time to pay off loans with your excess capital. If you ratio is less than 2:1, you need to make changes in order to protect your company.

In summary, individuals and business need documentation of every single transaction in order to have a complete understanding of where they stand financially. However, this quickly amounts to an enormous amount of information. In order to save time, bookkeepers organize each transaction into specific categories. With this information in tow, business and individuals are able to make confident and informed decisions about the future of their enterprise.

There you have it. My OC Bookkeeper’s introduction to the most basic bookkeeping categories. Check out our introduction to balance sheets to learn a bit more about balance sheets, and check out our introduction to income statements to learn a bit more about income statements. Or, Investopedia is a great place to learn about all things business, finance, and accounting. And of course, remember to reach out to My OC Bookkeeper – Orange County’s best small business bookkeeping company for all of your bookkeeping and tax needs.

Like videos? Here is a great educational video on bookkeeping categories – for other great accounting videos check out our YouTube channel.

What is Bookkeeping? Does My Business Need it? (Yes.)

A question mark on a piece of paper symbolic of the question: what is bookkeeping?

What is bookkeeping and why is it important?

Today we ask a very simple question: what is bookkeeping? On its most basic level, bookkeeping is the recording of day-to-day financial transactions. Whether for a business, nonprofit, government agency or individual, bookkeepers ensure that every financial activity related to a specific entity is documented in a consistent and accurate way. Some of these transactions include sales, purchases, payments, and expenses. This documentation is important because it helps business owners and accountants understand the financial well-being of a company.

What is the Difference Between Bookkeeping and Accounting?

Whereas accounting refers to comprehensive financial management and planning, bookkeeping is the specific task of recording and categorizing each transaction. While bookkeeping and accounting and are often referred to synonymously, bookkeeping is actually a subset of accounting. However, bookkeeping is more than simple financial data entry. It is a through storytelling of financial health, both at present and historically. By using the numbers you have recorded, you can analyze your current situation and compare how it looks over time.

What Can Bookkeeping Show A Small Business?

As bookkeepers know, if companies don’t record and understand their numbers, it is very difficult to grow them. The cycle of money coming in versus going out is known as cash flow. Keeping track of cash flow is one of the most important jobs of bookkeepers. Say for example you own a brewery and know only the total number of beers sold instead of how each type of beer is selling individually. Maybe you are making money, but you don’t know specifically where your money is coming from and therefore cannot grow your business. If you don’t know what your strengths and weaknesses are, you can’t strategically plan for continued success. In the case of a brewery, it’s important to note each individual beer that you pour in order to know which beers are selling better than others.

While this may seem obvious, often times businesses allow their books to fall months (or years) behind. This is dangerous because companies may be unable to see they are in financial trouble until it’s too late. Or, they may miss opportunities for expansion because they are unaware of their current strengths. Or, they may be unprepared come tax time. (More on this below.) Say you run out of your best-selling beer without realizing it’s your best seller. By the time you brew another batch your business may have lost out on revenue simply due to a lack of planning. Therefore, one of the major benefits of diligent bookkeeping is the ability to make better financial decisions and to plan for the future based on concrete numbers.

Basic Bookkeeping Categories

When you start to monitor each transaction individually, it’s easy to become overwhelmed by the sheer amount of activity. This is another important function of bookkeepers: keeping everything organized. Bookkeepers use five top level categories to achieve this organization. This creates a universal language that all bookkeepers can read without requiring additional knowledge of the business.

The categories are: assets, liabilities, equity, income, and expenses. (There are also a large number of subcategories, but we will address those in a follow up post.) These categories are used to create three financial statements: the balance sheet, the statement of cash flows, and the income statement (also know as profit and loss statement). You need all three to understand the overall financial health of your company, and they all start with the diligent categorization work by your bookkeeper. (For more detailed information on bookkeeping categories see our Basic Bookkeeping Categories blog post. And if you still want to learn more, check out this blog post to learn some income statement basics and check out this blog post for an introduction to balance sheets.)

Bookkeeping and Taxes

Bookkeeping is essential for tax purposes. As we have already noted, bookkeepers organize a business’s transactions. This means having all of the pertinent information at one’s finger tips come tax time, and being confident that it is correct and supported by a digital paper trail. Otherwise you will find yourself in a mad scramble for financial data and be far more likely to make costly mistakes, or even get audited. Forgot to include a $2,000 expense back in July? Too bad, you’ll have a higher tax bill. Don’t know how much money you spent on your work automobile? Can’t write that off anymore. Accidentally double counted your expenses? Time to prey for forgiveness.

If you do happen to get audited having organized and up-to-date bookkeeping records will make your life far easier. Because IRS agents will be able to access all of your financial records easily, the audit will be quicker and therefore less painful than it would be if your numbers are not up-to-date. (Looking for more information on taxes? Check out the IRS website here. Or, take a look at all kinds of great websites for small businesses here.)

What is Bookkeeping – Summarized

So, what is bookkeeping? Bookkeeping is the systematic recording of each financial transaction that affects an entity. To organize all of this information bookkeepers use established categories that are combined to create financial statements. Bookkeeping is important because it allows you to track your company’s financial behavior showing you where you are making money and where you are spending it. It also paints a picture of the financial stability of a company, which allows for better planning and decision-making. And finally, bookkeeping is essential for taxes because it ensures that every transaction has been recorded appropriately.

Enjoy our post? Be sure to reach out to My OC Bookkeeper, Orange County’s best small business bookkeeper for your bookkeeping and tax needs. And check out Orange County, California’s best bookkeeping blog here. Last but not least, enjoy the video below to learn a bit more about the advantages of using an outside bookkeeper and the services that My OC Bookkeeper offers.