5 Reasons Why Bookkeeping Is Vital To The Success Of Your Business
Whether a one-person company, or a large organization, bookkeeping is a critical component to the success of your business. In short, bookkeeping is the recording and organizing of financial transactions within a company, which can include:
- Payroll expenses
- Loan Payments
- Receipts from suppliers
- Customer invoices
Below are 5 reasons why bookkeeping is vital to the success of your business:
1) It’s Required By Law
Most business owners are unaware that the process of record-keeping is required by law and often find themselves in difficult (and costly) circumstances. As per the IRS:
“You must keep records, such as receipts, canceled checks, and other documents that support an item of income, a deduction, or a credit appearing on a return as long as they may become material in the administration of any provision of the Internal Revenue Code, which generally will be until the period of limitations expires for that return.”
In reference to business income and expenses:
“…you must use a [bookkeeping] method that clearly and accurately reflects your gross income and expenses.”
Read more about record-keeping guidelines as per the IRS here.
2) Being Audited? Rest Easy.
In the unfortunate event that you are audited by the IRS, it’s critical that your books are in order. If not, you could face added penalties, fees, and overall stress associated with a lengthy audit.
An organized bookkeeping system allows for you to provide the IRS with the documents they request in a timely manner.
3) Tax Time Is A Breeze
Tax time can be daunting for individuals and business owners alike. All too often tax season is spent scrambling for missing documents and calculating yearly expense totals.
With a bookkeeping system in place, a profit and loss statement is tax-ready, saving you time and money – making tax time a breeze.
4) Avoid Costly Errors
Avoid costly errors that can wreak havoc on your bottom line. Without a good record keeping system, business owners can miss a multitude of errors and mistakes, such as:
- Late payments – resulting in penalties
- Not catching bank errors or discrepancies if statements are not reconciled
- Pouring money into unprofitable endeavors
- Missed payments from customers
- Missed sales tax deadlines
5) Financial Health Checkup
Bookkeeping is the quickest way to understand the strengths and weaknesses of your business. You’ll be able to keep an eye on key numbers, such as: expenses, revenue, and opportunities for growth. By understanding your past business performance, you can better plan for the future.