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.