Why Every Small Business Needs Bookkeeping
Running a small business comes with a lot of hats —salesperson, customer service rep, product developer, operations manager; the list goes on. But one hat that is essential, yet often left hanging on the rack, is that of the bookkeeper.
Many small business owners shy away from bookkeeping because it seems intimidating or boring—just another administrative task that’s easy to put off. However, not keeping your books in order can cost you much more than just a few late nights in front of spreadsheets. Missed tax deductions, unpaid invoices, or a lack of clarity around cashflow can put a significant dent in your profits. To understand how bookkeeping impacts your business, it’s important to see what it actually entails and why it’s crucial for your growth.
The True Role of Bookkeeping in Your Business
Bookkeeping is the process of recording, categorizing, and reconciling financial transactions for a business. But bookkeeping, especially for small businesses, isn't just about logging expenses or categorizing transactions. It’s about organizing your financial records in a way that helps you understand your business — your financial health, growth, and profitability.
By properly organizing your business finances, you can:
Understand Cashflow: Knowing where your money comes from and where it goes helps you make smarter decisions and avoid those stressful cash crunches. Cash flow management can be particularly empowering, providing a clear snapshot of your financial health.
Simplify Tax Season: With organized books, tax season becomes less of a dreaded scramble and more of a predictable task. You can easily identify deductions and ensure compliance with regulations helping to minimize your stress levels.
Make Informed Decisions: Bookkeeping provides data that helps you understand your best-selling products and services, your most costly expenses, and your most profitable times of the year. This kind of insight can be transformative, allowing you to invest where it matters.
The True Cost of Neglecting Your Books
Raise your hand if you're guilty of pushing your books to the side for more important or just less boring tasks. You’re not alone.
Unfortunately, without proper bookkeeping practices, you’re essentially flying blind—making decisions without really understanding the numbers. This can be a problem. The harsh reality is many business owners don’t understand their books.
While many business owners have close to expert knowledge about the products and services they offer, about 60% of small business owners aren’t confident in finance & accounting, and about 1 in 5 admit to not understanding bookkeeping at all. That lack of knowledge can be a contributing factor to losing your business. When you look at the reasons for most small business failures, 82% of those small businesses fail due to poor cash flow management or poor understanding of cash flow.
While you may not be at risk of folding your business - thankfully - neglecting your books can still cost you money. The IRS will assess both a Failure to File and Failure to Pay penalty on your business if you miss your filing period. As well, you’ll be assessed a penalty if you underpay your taxes.
Finally, neglecting your books could hinder your growth if you plan on securing a bank loan or investments to help you with your next phase of growth. It has become far more challenging to secure a loan now for small businesses. In 2021, only 31% of small businesses received the full amount of funding they applied for, a decline from 51% in 2019. And the outlook doesn’t look much better in the coming years.
Best Bookkeeping Practices to Adopt Now
To increase your chances of success and avoiding these unsavory situations above, you need to adopt the right attitude, behaviors and habits. Feel free to read our blog on the 5 bookkeeping tips for small businesses and actions to take, but here are a couple takeaways:
Use Bookkeeping Software: Popular solutions like QuickBooks Online, Xero and FreshBooks are fantastic for entrepreneurs. They help automate and streamline your bookkeeping, saving you time and avoiding errors.
Track Transactions Closely: Make sure you’re recording and categorizing every transaction, whether it's a subscription service, a client lunch, or office supplies. Proper categorization helps you see exactly where your money is going and coming from.
Stay Consistent: Bookkeeping isn’t something you do once a year; it’s a practice that should be kept up regularly. This consistency makes tax filing smoother and keeps you constantly informed.
Ready to Transform Your Business?
Still need help and want more time to grow your business? As QuickBooks Certified Pros, we’re here to take the burden of bookkeeping off your shoulders, so you can focus on what you do best—growing your business. With our expertise we address the very challenges mentioned above—poor cashflow management and inadequate bookkeeping. Let us help you achieve financial clarity and stability.
Schedule a free consultation with us today and start your journey toward financial clarity.
