There’s no denying that bookkeeping is not everyone’s favorite business activity. And yet, bookkeeping is so important for maintaining a healthy business.
Oftentimes, it’s our least favorite tasks that are so necessary (why, oh why, must it be this way!?). Someone once told me that getting business owners to do their bookkeeping is like getting toddlers to eat their spinach.
I have experience with both.
I’m not sure which is harder. 🙂
Before we dive into exactly why bookkeeping is so important for your business, let’s review what bookkeeping actually is:
What is bookkeeping?
Bookkeeping is the scaffolding that all other business processes rest on. From accounting and tax filings, financial reporting, and HR compliance – each of these areas of your business use bookkeeping records.
Bookkeepers record each and every one of your company’s financial transactions. With that data they generate reports for accountants, leadership teams, investors and others.
Without good bookkeeping, every other business process is subject to error or instability.
So with that said, here are 5 big reasons why bookkeeping is so important for your business:
1. CLIENT EXPERIENCE
Without solid bookkeeping, your business ultimately cannot run smoothly. Money is the backbone of your business. Good bookkeeping allows you to stay on top of bill payments, contractor and employee payments, and client invoices.
When your money is disorganized, for example, you risk invoicing your clients late, which ultimately paints an unprofessional picture of you and your business.
Knowing what money is coming in, and when, will help you to stay on top of your accounts receivable (money that you are due to RECEIVE).
This enhances your customer experience – and you know – it’s no secret that a positive customer experience leads to customer loyalty, which leads to brand fans, which leads to more business andddddd MORE MONEY!
Moreover, if you’re on top of your money, YOU experience less stress and are better able to serve your clients, also creating a positive client experience.
Bookkeeping is important for your clients’ happiness!
Ah, everyone’s favorite topic.
But seriously. Bookkeeping assists you in maintaining accurate records for your accountant (again find the diff. between bookkeepers + accountants here), which ensures that you are paying accurate amounts on your taxes and avoiding nasty fees for inaccurate tax payments.
Moreover, bookkeeping is ABSOLUTELY ESSENTIAL if you ever get audited.
Generally, the IRS will typically not go back further than 3 years in your business during an audit, however they can request information from up to 6 years prior to the audit.
Imagine being audited with no bookkeeping system in place and suddenly having to do 3+ years of bookkeeping… hence why it’s important to maintain your books regularly.
(But if you do find yourself in this situation, don’t forget about our retroactive bookkeeping services!)
2. EMPOWERMENT + BUSINESS GROWTH
This particular topic may even deserve a blog post of its own.
Bookkeeping is SO important for YOU as a business owner and the overall success of your business.
A great example of this is people who are selling digital courses or products – let’s say you have several:
Bookkeeping helps you keep track of which products of yours are selling, and which are not.
This knowledge is imperative to understanding how to grow your business because it informs you what your audience is most drawn to.
When you know what is selling you can:
a.) focus your marketing efforts to sell MORE of popular items and abandon ones that your audience isn’t interested in and
b.) determine what sort of products to develop in the future.
Taking both of these action steps, based on bookkeeping DATA, can translate to more money in your pocket!
Furthermore, having knowledge of what’s going on with your money (instead of feeling like it’s subtly disorganized), makes you feel more confident and empowered as a business owner. You won’t walk into your accountant’s office feeling confused or insecure; you won’t have a constant nagging stress about your finances being disorganized.
3. PREVENTING PROFIT LEAKS
When you’re keeping track of all the money flowing in and out of your business, it’s easier to see where money is being wasted.
We are all guilty of letting certain software subscriptions extend far longer than they should.
When you’re running your own business, every cent matters.
Being able to have an accurate snapshot of your business at any given time helps you know where you can cut certain expenses. It also helps you understand when you can afford to make certain decisions (like hiring a virtual assistant, or investing in a new training course).
4. PREPARATION FOR THE UNEXPECTED
For say – oh – a worldwide pandemic.
But seriously. In 2020, small business owners ESPECIALLY realized how important it is to have their finances organized.
During the pandemic, many businesses were hanging on for dear life; those small business loans became lifeboats. And without bookkeeping, many businesses would not have had quick and easy access to certain numbers that were necessary to apply for these programs.
Additionally, many businesses had to make sudden decisions which were heavily influenced by their financial standing.
Without knowing where you stand financially, it’s difficult to be able to make these educated decisions – like knowing if you can even afford to keep your restaurant open at half capacity, for example.
BOOKKEEPING IS IMPORTANT FOR ALL BUSINESSES.
… But ESPECIALLY small businesses.
Sadly we know that approximately 20 percent of small businesses will fail within the first year.
While bookkeeping isn’t the most FUN activity when it comes to owning a business, there is no doubt that it is necessary and important for the overall health of your business.
Also – it’s not fun being subtly stressed that your financials are out of shape or even slightly disorganized. It’s like a light headache that never quite goes away.
If you’re struggling to keep your books in order and feel ready to delegate, book a free consult here.