Are you looking at your books? Most business owners push money management to the side so they can get client work done. Bookkeeping is more important than you think!
Did you know that poor bookkeeping is one of the main reasons businesses fail?
You heard me right! In fact, a study by the US Bank discovered that 82% of small businesses fail due to money management issues.
This is why it’s incredibly important to know what’s going on with your money. Otherwise, you’re driving a car with a blindfold on!
If that isn’t enough to convince you, I’m going to give you six reasons why you need to be looking at your books!
Looking At Your Books Will Help You Understand What You’re Making and Spending
You’re probably thinking, “But Kris, I don’t have time to look at my books. As long as I know about what I’m making and spending, I should be fine right?”
That’s a really easy way to collect overdraft fees!
Keeping your books up to date is simply knowing exactly how much you’ve spent and how much you’ve earned. This is crucial information when you’re running a business!
Tracking your income and accounts receivable lets you know how much money your business is bringing in on a monthly basis.
If you don’t look at it, then you won’t know if Joe Dirt still owes on that invoice you sent him 6 months ago or if he paid. It will be a pain to go through at the end of the year and find all the invoices, track down who paid and put it all together for your Federal Income Tax Return.
I don’t know about you, but as a small business owner, every penny counts!
Keeping track of what is and should be coming in will help you to know if you can pay your monthly expenses for your business. Be sure to develop a process for collecting if your clients are slow to pay. That is a topic for another discussion down the road.
You Can’t Change Anything If You Don’t Know What’s Wrong
Who here is a fan of Dr. Phil? 🙋♀️
One of my favorite quotes from him is, “You can’t change what you don’t acknowledge.”
This is particularly true when you’re managing money for your business. From time to time, you will need to analyze your business spending and decide whether your expenses are too high or not.
I hate to break it to you, but you might need to slow down on those Amazon purchases.
If your business bookkeeping is not up to date, you will not be able to perform this analysis annnnnndddddd you will be setting yourself up for a great big migraine come tax season!
You don’t want that!
Less Stress at Tax Time
Let’s say your books are out of date when December 31st rolls around…
Odds are, you already don’t have a ton of time to invest in bookkeeping, but now you’re going to have to do some catching up! You could save yourself all that money and time if you just keep up with your books throughout the year.
When your bookkeeping is all taken care of, you can slide in and out of tax season like a penguin on ice!
You won’t have to deal with hiccups over missing receipts, uncategorized purchases, or a HUGE tax bill because you didn’t save enough during the year.
When New Year’s pops around, you can focus on drinking wine and celebrating vs. prepping for your taxes!
Since we’re talking about tax season, let’s talk about estimated taxes!
If you’re going to make quarterly estimated tax payments (and I highly suggest you do), you’ll need an accurate forecast! To pull an accurate forecast, you’ll need to look at your past financial records to figure out what you were making in the past.
Forecasting is also important if you plan to grow your team. Checking to see what you’ve been making each month can show you whether or not you can afford to pay your team members for their work!
Set Aside Money For Emergencies
I hate to break it to you, but there are going to be emergencies in business (and in life). There are going to be times where you’ll need some extra cash to get you through the month.
I highly suggest you create an “Oh Crap” fund if you don’t already have one. The emergency fund can help absorb the cost if something were to go wrong in your business. So, if your trusty computer decides to quit, you’ll have the means to purchase a new one (if you’re being good and putting money away).
However, you won’t know how much you have saved unless you’re keeping track of your books!
See the Financial Health of Your Business
As an entrepreneur, you should be analyzing the financial health of your business. Knowing the overall health of your business will help you to make more sound financial decisions and achieve your overall financial business goals.
If your bookkeeping is current, you will be able to run a current Profit & Loss Statement (sometimes called an Income Statement). This report will show you the bottom line or the Net Profit or Net Loss your business has after all your expenses have been subtracted from your income.
If you have a profit, that means your business is making money and your expenses are in check. It is still a good exercise to look at your expenses at least quarterly, to keep them in line with your business goals. After all, the money is better off in your pocket than in the pocket of your vendors!
On the other hand, if you have a loss, your business is losing money. At which point, you need to look at what expenses you can get rid of so you can lower your overhead.
Without this information, you are just running your business blindly. You won’t know if you can afford to buy the latest and greatest program or spend money on a course to increase your certifications!
Procrastination is a business owner’s worst enemy. Don’t procrastinate on your bookkeeping! Keeping track of your books will make managing your business so much easier.
If you can’t do it or don’t want to do it, then outsource it! Find an experienced bookkeeper and let them take that headache off your hands so you can concentrate on the parts of your business that inspire and energize you! Better yet, let me take care of it for you! Click here to book a discovery call!