Bookkeeping is a simple task, easy to fit into any schedule, or, if necessary, do your bookkeeping with bookkeeping software. Yet for the small business owner, managing and monitoring outlay and receipts are time-sensitive and crucial to best practices, even solvency. Every choice you make and action you take significantly impact the fast-paced world of small businesses. Among these, the importance of bookkeeping stands out as a crucial success factor.
Bookkeeping is the careful art of documenting and organizing financial transactions, and it is frequently undervalued. An in-depth discussion of the importance of bookkeeping for small businesses and how it might affect their development and sustainability is provided.
The Importance of Bookkeeping for Small Business
The foundation of management, investing, and reporting is bookkeeping. It is only possible to make decisions about renting space, buying office supplies, hiring new employees, or considering vendor bids, for example, by monitoring cash flow and asset reserves. The failure of a corporation to appropriately disclose receipts and expenses to local, state, and federal taxing authorities is equally significant. Consequently, bookkeeping is crucial for managing finances.
Idealized reporting for salespeople with expense accounts includes costs for travel, meals, libations, rental cars, and other client entertainment expenses. Since the business pays for them, bookkeepers must accurately document each expense. The Bookkeeper must also group this expense by category and person. These expenses should be swiftly and efficiently recoverable in the event that they are investigated. This is why My tax team keeps precise records of revenue, tax liabilities, purchases, financial assets, and expenditures.
Purpose of bookkeeping
Organized maintenance of financial data is foundational for budget allocation, raising capital, strategic analysis, and future expenses. Though practices may vary by individual, most bookkeepers share the following duties in common:
- Maintenance of a general ledger in which all credits and debits (revenue and spending) are documented and tabulated.
- Reconciliation of company books with monthly statements from banks and investment funds.
- Recording or making remittances to vendors, lenders, and, if applicable, the accounts payable department.
- Generation of invoices for clients/customers and integration of receipts from accounts receivable.
- Periodic audits of inventory and supply.
- Composition of balance sheets, profit & loss statements, and other reports documenting the firm’s financial status.
A bookkeeper’s duties may be broader or narrower than this list, depending on the business owner, the particular Bookkeeper, and what accounting operation exists.
Types of bookkeeping
The two central systems still exist in today’s digital era, but it’s much easier to perform bookkeeping tasks for your company by the tax team on the computer than by hand. Many business owners do their bookkeeping or outsource the duty to off-site accounting professionals.
The single-entry bookkeeping system is used for businesses with minimal or uncomplicated transactions. This system records cash sales and business expenses that are paid when incurred. This system is not traditionally used for businesses that have accounts receivable, accounts payable or many capital transactions. Bookkeeping entries under this system don’t match transactions to corresponding accounts, which can make tracing revenues and expenses more difficult. The single-entry system consists of a cash sales journal, a cash disbursements journal, and your bank statements. An entry is made to the sales journal when revenue is received, and an entry is made to the disbursement journal when an expense is paid. Your journal entries should reconcile with your bank account transactions.
Double-entry bookkeeping systems are used for businesses that routinely have more complex transactions. Companies that collect income through accounts receivable and receive merchandise and inventory on credit are better suited for this method. This system posts single transactions as an income or expense item and then creates a second entry to trace the transaction to a corresponding account. For example, if you receive income from a customer, the revenue is posted as income and traced to the customer’s account. If you are audited or need to know where income and expense payments are generated, you’ll have a paper trail to find the information quickly. This system uses debits and credits, the accountant’s language of increases and decreases to each account affected by your transactions.
Cost of bookkeeping services
Part-time bookkeepers will charge between $400 and $800 monthly for basic bookkeeping, excluding the benefits. For full-time services, expect to pay from $3,000 to $4,500 per month without the benefits. For outsourced bookkeeping, the price is from $500 to $2,500 per month for basic bookkeeping tasks.
Why bookkeeping is important
Your Small Business needs a Bookkeeper.
You can do just fine without a regular bookkeeper. Yet there are a few tell-tale signs indicating future problems without one. Here, we answer the question, how does bookkeeping help a business?
Your Books Are Not Current
The actual situation of a company’s finances and cash flow is always dynamic. Accounting records capture a moment in time, but only when they are regularly updated. If a business makes little money, the owner must take steps to boost revenue. The proprietor is aware of the need to strengthen some policies if business is brisk. However, if the owner accepts any action out of ignorance, it may result in beneficial behavior and sound business performance.
Disconnect between Sales and Profits
If sales are soaring, but earnings are staying the same, there is a problem. A bookkeeper’s financial reporting is beneficial in these situations. These financial accounts can show you where to cut expenses or raise prices. These reports can track accurate financials if a capable bookkeeper is available.
Your business likely has to file tax returns every year. Instead of rushing to find receipts and missing paperwork, filing taxes can be less stressful by outsourcing your bookkeeping to a company like True North. Bookkeeping also has an impact on your personal tax returns. The majority of your income as a business owner is from earned wages. To know how much money you made, you need to understand how much your business made. By having the correct bookkeeping system and service providers in place, you can be sure your bookkeeping is organized, and your financial statements are readily available.
Cash Flow Is Unstable
A picture of the inflow and outflow of money might help to stabilize the situation if your monthly cash flow turns out to be unpredictable and you have no guarantee about the amount of cash you have on hand. The cash flow statement (CFS) gauges a company’s ability to raise the money required to cover its operational expenses and settle its debts. The CFS also serves as a reminder to a company of any outstanding receivables.
Bookkeeping Is Getting Time-Intensive
Despite their intelligence and prowess with numbers, many business owners quickly learn how time-consuming and tiresome bookkeeping can be, leaving little time for planning, forecasting, and team building. Calculating the hours you spend on this task will help you decide whether doing your bookkeeping is a good use of your time.
Bookkeeping Is Getting Time-Intensive
Despite their intelligence and prowess with numbers, many business owners quickly learn how time-consuming and tiresome bookkeeping can be, leaving little time for planning, forecasting, and team building. Calculating the number of hours you spend on this task will help you decide whether doing your bookkeeping is a good use of your time.
Business Targets Are Simpler to See
Every firm wants to expand, but doing so at the desired rate may be improved by satisfactory financial records. It’s difficult to set growth goals when there are no precise figures or statistics to analyse. Again, it will be because you’re speculating on everything; thus, you’ll be unhappy that you fell short of your earlier goals. You may map out your business goals more precisely and experience progress by staying on top of your books and maintaining regular financial records.
Fulfilling governmental requirements
Every time the government announces a new effort, it is primarily to make life simpler for them. Most recently, the government has expected firms to comply with the Making Tax Digital (MTD) project.
As stated on the tin, businesses must begin filing their taxes digitally using applications and software. You’ll need to use an app with the help of my tax team in addition to doing your books in this situation.
It gives You Extra Peace of Mind.
Unorganized books, HMRC giving you problems, and those looming tax deadlines can all contribute to plenty of stress and panic. As a business owner, the last thing you want on top of your day-to-day tasks is bookkeeping issues weighing on your mind. When your books are complete and tidy, they won’t keep you up at night. You can rest easy knowing that your business’s financial information is ready to be reviewed without HMRC giving you any anxiety. Your mind will be at ease, and you can focus on other business areas.
Bookkeeping Benefits Small Businesses
Records Are Organized, Accurate, and Accessible
Business leaders must understand both the amount of money that comes into and leaves an organization and its origins and final destinations. The frequency of payables and receivables, along with other observable patterns, are essential factors in decision-making. Comprehensive transaction documentation is necessary for comparing and contrasting business costs with different providers. Additionally, recorded evidence is crucial to the best resolution of both internal and external disputes since it makes the process quicker and more effective.
Keeping Payroll Straight
Remunerating staffers for their labor is among a company’s largest expenses. However, this goes beyond cutting checks, unlike paying vendors or buying supplies. In some cases, holding back federal and state taxes, unemployment and workers’ compensation insurance, health and dental coverage, retirement account deductions, vacation pay reimbursements, and stock/ownership contributions can be complex, calling for meticulous checks and re-checks.
In addition, these figures require rigorous notations for the record. The chart of accounts set up by a knowledgeable bookkeeper helps to manage these myriad numbers and serves as a necessary record if an employee contests a paycheck.
Budgeting Using Sound Figures
Every company that is worth its salt operates on a well-planned budget. Being current with one’s knowledge of income, expenses, and assets is a requirement for any budget conversation. The organization’s management may make decisions regarding upcoming investments, purchases, raises, and other costs when they have accurate data.
Additionally, it can decide whether or not to raise the pay it receives from clients or customers. However, none of these judgments are made in a vacuum because every small business’s financial decisions need to be supported by factual numerical data. This information is gathered through bookkeeping.
Ability to make informed decisions.
Because bookkeeping involves the creation of financial reports, you will have access to information that provides accurate indicators of measurable success. Businesses of all sizes and ages can make strategic plans and develop realistic objectives by accessing this data.
Examples of financial statements that can help with decision-making include:
- Balance sheets
- Income statements
- Cash flow statements
Not only can this help you set goals, but it can also help you identify problems in your business. Accurate records of all transactions allow you to quickly discover discrepancies between financial statements and what’s been recorded. This will enable you to catch any errors that could become an issue soon.
How much does it cost to hire a bookkeeper?
Based on our research, the cost of a bookkeeper will generally range from $500 to $3,520 a month. We know that’s a pretty extensive range. Your actual cost will depend on factors like:
- Your location
- The Bookkeeper’s experience and credentials
- Whether they’re full-time or part-time
- Whether you’re hiring in-house or outsourcing
An in-house bookkeeper will often cost you more than an outsourced bookkeeper, although hiring one gives you more oversight and control over your bookkeeping. The costs above represent an average rate for traditional bookkeeping services. Online services will generally be the most affordable. More on that later!
Of course, money isn’t the only consideration here. You also have to think about the size of your business, not to mention its structure and complexity. Different companies have different needs. That said, we know cost is essential. So, let’s break down the various bookkeeping options, who they’re best for, and how much you’re likely to spend on them.
Bookkeeping is the compass that guides small businesses through the complex landscape of finance. My tax team empowers entrepreneurs to make informed decisions, remain compliant with regulations, and unlock growth opportunities. The role of bookkeeping extends far beyond number-crunching; it serves as the cornerstone of a strong financial infrastructure that enables small businesses to flourish and reach their full potential.