Life as a business owner is exhilarating and rewarding, but lets get back to the basics for a moment. With many factors to consider, such as branding, financing, company structure, and hiring employees, it’s no wonder that bookkeeping becomes an afterthought, viewed more as a necessary part of filing taxes and less as part of an effective business strategy. Here are three reasons why bookkeeping should be a forethought and not an afterthought:
- You can’t make good decisions without knowing where you stand
Your financial advisor doesn’t make investment decisions for you based solely on a gut feeling. An analysis is completed of your individual goals and needs, cash availability, risk tolerance, and other factors. Business operating decisions should be treated in the same manner. Intuition and desire are no match for numbers that tell you the truth about where you stand. Can you really afford to expand? Is it worth it to hire another employee? Utilize bookkeeping to maintain up to date records that will help you make decisions that benefit your business. One site suggests there is no one-size-fits-all suggestion when it comes to hiring a bookkeeper, but its better to do it sooner than later.
- Bookkeeping prepares you for the inevitable: taxes
An up to date snapshot of your business financials will prepare you for the inevitable pain of paying your taxes. Too many people ignore the completion of their records until tax time and are shocked to learn they owe money. Worse, these folks have spent their cash and have none left to pay taxes. Obviously, this is less than ideal. Take the pressure off learning your ‘final number’ once a year and review your books regularly. While bookkeeping is not the exact same as completing a tax return, you should be able to get a sense as to whether you are having a great year or not. A fantastic year may mean talking to your accountant about tax installments, or simply mentally preparing yourself (and your bank account) for a larger bill. Either way, avoid learning your fate at the last minute.
- Pay a bookkeeper to maintain records, and a financial planner/accountant to help with business decisions
There are many third-party bookkeeping services available; however, it is also common for accounting firms to utilize in house bookkeepers as well. There is a reason for this: the rates charged by a Chartered Professional Accountant (CPA) are higher than bookkeeper rates, so using a bookkeeper to maintain your records minimizes your costs and allows your accountant to work with your financial planner to provide value added services, such as corporate structure planning, insurance and tax planning. Designated financial planners and CPA’s are there to provide useful insights to you on business opportunities and planning, not to maintain your records!
Armed with these thoughts, make bookkeeping a priority. Your financial position should drive nearly all decisions regarding financing, expansion, branding and more. Proper bookkeeping is not an afterthought, it is the cornerstone of a successful business!