Benefits of Good Bookkeeping
1. Avoid Cash Flow Problems
The ultimate goal of any business owner is to make a profit. However, many new and even seasoned business owners tend to forget the importance of maintaining a healthy cash flow. There are several aspects of the business that can be affected due to problems with cash flow. One may find themselves unable to meet their obligations to vendors that provide services needed for a business to run smoothly, such as paying the landlord and the electric companies to name a few. Another big issue is not being able to pay the employees on time due to cash flow problems. Unhappy employee may lead to inefficient services. Lastly, relationship with vendors can be negatively impacted due to late payments.
2. Customer relationship
Maintaining a positive relationship with customers and clients is important for the growth of a business. Getting positive reviews and testimonials can bring in new business for a company. That is why being able to monitor the transactions of customers, such as sales and payments, is important. Good bookkeeping workflow and habit can help business owners avoid problems such as double entry of invoice or non applying payments to invoice. This can help avoid collecting an invoice that is already paid for.
3. Tax Preparation
An efficient bookkeeping workflow can help business owners update their books on a regular basis and ensure that all sales and expense transactions are accounted for. This can save business owners time, money and headache during tax season. It can also provide peace of mind that their business is tax compliant. For instance, a business owner needs to check if they are collecting the right amount of sales tax or if they are required to collect sales tax. Good bookkeeping can also ensure the business owner that they are paying the right amount of taxes for their business. For instance, properly categorizing business expense can help lower their taxable income.
4. Financial Reports
Financial reports can provide insights to the profitability of a business. For instance, the business owner can rely on these reports to check which products or services are the most profitable. Making decisions about these products/services will be easier if the Profit and Loss Statement is accurate. Furthermore, these reports are needed to help business owners make the best decision for the growth of the company. In cases when a business owner makes a decision to apply for a credit line, they will be required to produce a Balance Sheet, a Profit & Loss Statement and a Statement of Cash Flow to the financial institution. Without proper bookkeeping and workflow, financial reports are useless and unreliable, even if it is generated from an accounting software.