Regardless of the size of your business, your bookkeeping is something you need to stay up to date on. Especially if you’re self-employed or an independent contractor, it’s necessary to keep accurate financial records. This is the best way to ensure that your business grows and remains profitable.
Continue reading to find out more about why bookkeeping is so important to small businesses and independent contractors. Some of the reasons may surprise you.
- Proper Bookkeeping Will Remind You to Pay Bills on Time
A bookkeeping system, even the most simple one, goes a long way in assisting you in paying your bills on time. Keeping track of your bills, invoices, and recurring costs is vital to ensure you do not fall behind on expenses or collections. This includes loan payments, invoices, rent, utilities, payroll, and other bills. Falling behind on bills is generally the biggest reason why small businesses fail.
- Bookkeeping Helps You to Plan Ahead
Every business owner needs to plan ahead to some extent. This is known as budgeting. Bookkeeping helps you do this by allowing you to look at your current income and cash flow, earmarking funds for future purchases. Proper bookkeeping also allows you to think about downsizing, if necessary. Many times, businesses don’t show a profit as quickly as anticipated. By keeping an eye on your finances, you’ll know when and if you have to cut back.
- Professional Bookkeeping Helps You Avoid a Tax Audit
Unfortunately, one of the quickest ways to get audited is by having messy and/or incomplete tax records. This lack of bookkeeping is one of the biggest triggers when it comes to IRS audits. It’s far better to take the time and energy to keep your books up to date, rather than spending countless (and otherwise unnecessary) hours complying with an auditor. In the event you still get audited, having everything in order makes the process go much more smoothly and quickly.
- Bookkeeping Helps You Get All the Tax Deductions Your Business Deserves
As a small business owner, or independent contractor, it behooves you to take advantage of every legitimate tax deduction you can. The money you save on taxes can be put back into the business to help it grow. When you keep track of financial details throughout the year, there’s less chance that you’ll overlook some of the deductions that you qualify for. Keeping your bookkeeping records up to date will also help your tax preparer finish your return faster.
- Bookkeeping Helps in Setting Goals For Your Business
One of the best ways to be successful with a small business is to set goals for yourself. Ask yourself questions like, “How am I doing?” and, “Can I really afford to expand?” Adequate bookkeeping helps to answer these questions and allows you to set realistic goals for the future.
- The IRS Requires That All Businesses Keep Accurate Financial Records
While they do not specify the method of record keeping, it is always suggested that all original records (receipts, bills, invoices and canceled checks) be kept at least seven years. IRS Circular 230 describes how any record keeping system is acceptable.
But during an audit, the IRS may require that original documents be presented to the auditor. You should keep these records filed by year, month, and type. These records should be kept for at least seven years. A professional bookkeeping system will tell you where to find those records for any given transaction, month, or year.
How to get your bookkeeping done
Even if you’re not the best with numbers, there’s no reason to panic. There are several excellent accounting software choices which you can use to manage your own books. Newer cloud computing options are making this software even more accessible. The most popular accounting software in America is QuickBooks Online.
Other online accounting software includes:
- Xero (most popular outside of the US)
- Wave Accounting
- FreshBooks
- Zoho Books
Accurate bookkeeping is important for your business. These are just a few reasons why bookkeeping is so important for every small business, both for legal compliance and for business decision-making. Competition is always tough, regardless of the industry. It’s vital to do all you can do to succeed.
Your safest, and best option is to hire a bookkeeping professional. The money you’ll spend is worth it when you consider that he or she will help to ensure the highest degree of accuracy and completeness in your bookkeeping records. Interested in learning more? Book a free consultation with Rainbow Bookkeepers.