Bookkeeping is one of the most critical aspects of your business’ financial foundation
Most people don't understand the value of bookkeeping or the impact that inaccurate books can have on the success of the business. It is often treated as a trivial, low level task that can be done by anyone who knows their way around QuickBooks. The reality is bookkeeping is one of the most critical pieces of your financial foundation with huge implications on growth. Good bookkeeping results in inaccurate financials that allow service providers to analyze performance and make strategic decisions about the company's future. Bad bookkeeping can lead to incorrect assessments, over payments of taxes, and a mess down the line when the numbers must be corrected.
What is bookkeeping? How do I properly manage this task?
Bookkeeping is the classification of day-to-day transactions into appropriate lines of accounting. These lines then make up the company's chart of accounts, the list of all of the financial statements accounts that you can associate an activity to. Those lines make up your balance sheet and profit and loss statements. These financial statements are then used both internally and externally to reflect the current and historical state of the business.
Proper bookkeeping ensures that transactions are imported accurately, completely and consistently. This means that all transactions must be included from every account on a regular basis which provides you with access to real time data when you need it. It also allows you to make the necessary changes to make sure your business has the revenue and cash flow necessary to cover and sustain operating expenses.
So what does that mean? When you're properly maintaining your bookkeeping, at any point, you should be able to jump in and see how your business is doing. You have the flexibility to be able to make shifts based on accurate information, whenever you need to.
The truth is bookkeeping is really about cash flow.
Cash flow is the number one reason that small businesses fail, not because the idea was bad or there wasn't enough income.
Most companies that cease operations had a mismatch of cash coming in to cover everything that needed to go out. The best way to see that is to stay up to date with your bookkeeping, your categorizing, and all the money that's going in and out. Then you’ll know what you need to have on hand to cover payroll, operating expenses, or contractors that you’ve hired. The goal of accurate bookkeeping is to give you a baseline that you can use to make decisions for the business.
Now that I understand the importance, what are my next steps?
Say you're a coach or a consultant who has been managing your own bookkeeping.. You don't feel like you have the time or the expertise to take care of the income and expenses that your business has. You're not really confident about what you've done so far. You don't have accurate financials, so you can’t tell how well your business is doing.
Get an accounting system. If you haven't read our article on the importance of cloud accounting, click HERE to read that next. Setting up this system properly will help you automate the process, saving you time and stress.
Hire help. Most entrepreneurs don't have the knowledge, training, or time to handle their own bookkeeping. You want to find a bookkeeper that's familiar with your business type and your industry. They can manage the categorization, reconciliations, and the financial statement preparation. You can then use that information for all of the other business decisions that you'll make at the end of the day.
You want numbers that you can rely on to be organized when the need arises, so stay ready. This makes bookkeeping practices, grant opportunities, loan applications, and even your annual tax prep a far less stressful experience.
Are you ready to let go of your accounting system, set up bookkeeping and financial statement preparation? If you have been reading this post and now you are looking for a partner to go beyond the basics so that they can guide your processes and best practices, we have the solution for you.
Enter the Little Fish financial manager service for six and seven figure businesses looking to elevate accounting and tax support. This monthly service is the perfect choice for you to build your business while releasing the stress and confusion that comes with going at it alone. In addition to bookkeeping, we categorize transactions on a weekly basis, so your books will always be up-to-date, allowing you to be able to know the performance of your business at any given time. Head to https://www.littlefishaccounting.com/financial-manager to learn more and apply