Bookkeeping is maintaining financial transaction records for a business. One of the critical parts of businesses, bookkeeping induces a sense of better analysis for decision makers. It shows the actual business performance over any period of time.
Businesses that are larger in size have better resources to avoid errors with bookkeeping and they have better resistance to damages due to accounting errors. However, bookkeeping plays an equally critical role for the smaller and medium scale businesses but their lack of resources greatly increases their vulnerability. Hence, the accuracy with bookkeeping holds an indispensable importance. Accurate bookkeeping can help a small business with:
Table of Contents
1. Avoiding Tax Errors and Penalties
Tax for businesses involves an intense and exact calculation of various financial activities occurring in an entire year to calculate income, expenses, etc. Mistakes with these calculations can easily introduce errors with taxes and eventually, invite penalties from the taxing organizations. Paying taxes hurts small businesses a little, but what hurts them more is paying additional penalties raised due to tax errors. An accurate bookkeeping can help the small businesses avoid such errors and penalties.
2. Escaping Forecast and Planning Troubles
Finance counts for the business performance. And, decisions that are made to secure the future of the business rely heavily on assumptions delivered by the performance in the term past. Bookkeeping ensures that you remain availed with all the required performance reports. From the employee allowances to infrastructure expenses to demand calculations, all these forecasts requires financial input and they can only be predicted via analysis of the correct accounting data.
3. Managing Cash Flow without Catch 22 Situation
Accuracy with the correct bookkeeping is the only way to stay on top of cash flow management. Keeping bills and receipts for every cash expense is one of the basic practices that come in handy for maintaining an efficient cash flow. Then keeping the books updated with these expenses timely helps further. If there are delays with updates, some expenses might go ignored and business can lose out on the cash flow structuring.
4. Immunization against Growth Hampers
Investing in the right resources and expanding into the right trades takes flight on the fine analysis of the current capabilities in terms of the funding available with the businesses. That, directly or indirectly, depends on the act of bookkeepers. In case, the bookkeepers are not able to provide the business with the error-free reports of current accounting status, the growth plans are most likely to fall flat.
How to Keep the Bookkeeping Accurate?
An experienced and skilled team of accountants is a critical factor that adds strength to bookkeeping operations. For small businesses with limited budget and resources, it remains a major challenge to accommodate expert accounting professional. Outsourcing of the accounting operations can solve this issue to a good extent especially during the tax season, which has arrived for the year. Even with the outsourcing option, one must keep all receipts and transaction record with them. Since financial transactions for any business are endless, keeping an accurate track of them manually is nothing less than a herculean task.
So, the touch of technology is a bankable solution. The use of reliable tax software for small business can minimize the inaccuracies with various financial activities. It can automate the transaction updates and remains exempt from calculation errors. Furthermore, most software can even keep invoices and payment receipts stored to maintain the authenticity of bookkeeping records. Hosting tax software on cloud diminishes the need for dedicated devices and can be worked upon from any location. With the automated backup and permission control, outsourcing also becomes more reliable.
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Rouven7 years ago
Undoubtedly, these points play a significant role in understanding the crucial components of bookkeeping tactics and getting the process right early. A simple addition, it’s always good to maintain track of inventory. And cost of goods sold (COGS) should be processed consistently.
Sergey7 years ago
True! Holding on to receipts and expenses works as a shield for yourself and the business. Throughout the year, every time I receive a receipt I ensure that online receipts are stored in my Evernote folder. This helps in avoiding year-end hassles.
Tracy7 years ago
Great thoughts! Going through this article helped me discover few additional points that can aid in improving my business functioning. Point #2 and #3 play a critical role in keeping businesses on track.
Carbis7 years ago
Wonderful write up Kartik! Being, an upcoming startup owner, I keep on checking out suggestions and tips as an entrepreneur to handle my expenses. This article indeed has great ideas to prepare for taxes, here’s one more small tip — often it happens that miscellaneous and hard core expenses get mixed up. There are chances that an unusual report may come up for company’s investment if hard core expenses merge with the miscellaneous expenses such as bank charges, travel expenses, etc.
Mikey7 years ago
This is an extremely wonderful guide; however, consulting to the tax/professional bookkeeper can aid in making better tax preparation report. A simple error in inaccurate/incorrect fillings and payments can make big difference to the bookkeeping system.
Joey7 years ago
Great advice! Some of the very valid points have been shared in this post, I completely agree with these points as essential for managing the expenses. Also, there are lots of inexpensive/free software solutions that can aid in keeping things organized. These solutions can make a big difference in your business proceedings.
Daryl7 years ago
Thanks for sharing great thoughts. These can help to develop an understanding on how to develop a stringent set-up for financial/accounting system. Also, payroll issues are some of the other critical tasks. It is essential for maintaining the financial stability and cash flow system of the business.
easieraccounting4 years ago
Bookkeeping gives you information on which business lines are working or not working. Thank you for sharing your articles.