Owning and running your own business is something that many people dream about. However, many of these people do not realize the importance of good bookkeeping. There are many reasons why you cannot afford to be bad at bookkeeping when you run your own business. It is important that you understand what these reasons are to ensure that you have the correct bookkeeping process in place.
Knowing Your Cash Flow
The primary reason why you need to be good at bookkeeping is your cash flow. Knowing how much money your business is taking in and how much is going out is essential to good business practices. If you have bad bookkeeping, you will not know how much you own your creditors, how much your debtors owe you and whether or not your business is making a profit.
Knowing your cash flow can also help you make the big decisions for your business such as whether or not you can expand. If you need to take a loan, you will also need to show that your business is profitable and this can only be done through good bookkeeping.
Getting Your Taxes Done
There are 2 ways that your business can do taxes. One is to provide your accountant with a pile of invoices and other documents for them to sort. This is a time-consuming and expensive option because accountants will charge you by the hour. Most businesses will look to avoid this option.
The second option is to provide your accountant with a neat set of books that they can use to file your taxes. This will be faster and cost less as the accountant will have to do less work. When you have a clean set of books, you will generally end up paying less tax because your accountant will be able to easily see where all of the tax deductibles are.
At some point, your business might face an audit and this can be a problem if you do not have good bookkeeping practices. When an audit is completed, the tax authorities may disallow some of the expenses that you have claimed as personal and not business. This will increase the amount of tax that you will need to pay and could cause additional problems.
If you have to have your business audits, have bad bookkeeping practices will also increase the costs. The more disorganized your financial documentation is, the more the audit firm will be able to charge for the audit. This is something that you need to consider if you are going to be selling your business at some point in the future.
Saving Yourself From Fraud
While no-one wants to think that their employees could be stealing from them, this is something that could happen. When you have bad bookkeeping, you will not have a clear track of your business funds. This will make it easy for unscrupulous people to siphon off money from your company and open your business to fraud. Hiring a personal bookkeeping will be our number tip you can save yourself some money and have it complete by a professional.