Wouldn’t you rather look at cute kittens than learn about bookkeeping? Of course! most of us would!
As a business owner, you should have at least a basic understanding of how the numbers work. Without proper bookkeeping, it’s like driving your car without GPS or a map: sooner or later you’re gonna get lost. You might already be off your path and not even realize it.
This article will share an overview of bookkeeping and why it’s so important.
What is exactly IS bookkeeping anyway?
Bookkeeping is the process of tracking all of your company’s financial transactions by uploading or entering them into accounting software. Back in the day, it was a physical set of books – hence the term.
A proper bookkeeping system lets you see exactly how your business spends money, where your revenue is coming from, and how to pay your taxes and claim deductions. Bookkeeping is the foundation of other accounting and finance, just like a ball of yarn is the foundation of a nice sweater or an excellent cat toy. You could knit a sweater from tangled yarn but it would be alot harder to do. It might not even be achievable, depending on how tangled that yarn has gotten. Similarly, you should not just take the numbers the banks give you, let software categorize it, spit out some reports and make decisions based on that information. If the source data is inaccurate and categorized incorrectly, you are trying to knit a sweater from a bunch of tangle yarn. Was there a kitten here? Who keeps tangling my yarn?!
Five reasons why you need better bookkeeping
This is not a comprehensive list, but it’s certainly a “top 5”.
- Filing your taxes
You have to know your income and expenses (on a cash basis) in order to file taxes correctly. If you ever get audited or end up with a huge tax bill you didn’t expect – proper bookkeeping can prevent those scenarios, or at least better prepare you for them.
- Tracking your expenses
Bookkeeping can help you assess the financial health of your small business. Little expenses add up over time. Maybe your cash flow is increasing, or decreasing. Maybe you’re actually turning a nice profit. Or you don’t realize how much shipping is costing you. Only with proper reports can you see these trends and know how to fix them (or capitalize on them).
- Identifying tax deductions
The more information (and supporting documents) you can give your CPA at tax time, the more deductions you’ll be able to legitimately claim. More deductions means a lower tax burden.
If you are ever audited, you will need this level of documentation to provide to the IRS the proof that your deductions were taken correctly.
- Fundraising or debt financing
Whether you’re talking to investors or lenders, they need a clear idea of your company’s financial situation along with the confidence that you know what you’re doing. The “holy trinity” is your balance sheet, income statement, and statement of cash flows. Whether you’re talking to a bank about a letter of credit or SBA loan, or you’re sitting in front of powerful VC’s pitching your idea – your success is mainly tied to the quality of your spreadsheets, and only secondarily based on your amazing business idea or its marketing potential.
- Catching costly mistakes BEFORE they cost you
We all tend to procrastinate when it comes to bookkeeping (and if you don’t procrastinate: YOU ARE AMAZING). Because we are often trained to tax cycles, we tend to wait til the end of the year to catch up. Or maybe once a month when we get our bank statements. This lack of discipline can cost you in many ways.
Atlas Bookkeeping will Navigate Your Books for Success. Our online Navigator Tool streamlines the process and integrates well with Quickbooks. Our team of bookkeepers are balanced by our executive leadership of C-suite/founders, so you’ll get accuracy at the “weeds level” along with a bigger picture perspective. We can support you during initial startup, fundraising, rapid growth, audit or tax prep, M&A, IPO, and any other business dynamics that come your way.