Managing a small business can become stressful and overwhelming if you are not sure where to begin. It requires more than simply selling goods and cashing checks. Therefore, if you want to keep your small business running smoothly and without interruption, it is essential to remember the importance of managing your finances as well as your expenses and taxes. In this article, we will explain what Bookkeeping is, why it matters, and we'll give you remarkable Bookkeeping Tips for Small Business Owners.
What is Bookkeeping for a Small Business?
Small businesses require a bit more attention than simply managing a tax return each year. When running a small business, bookkeeping is an integral element involved in the process.
Bookkeeping is defined as “The process of recording all of your company's financial transactions, and is part of the process of accounting in business.” See the Source
Typically, this process involves managing income, outgoing expenses, taxes, and even deductions throughout each quarter of the year.
Proper bookkeeping gives business owners the ability to manage their finances. They can see exactly where the company is spending money and that allows them to eliminate the guesswork involved when making new investments and decisions that may impact the future of their business as a whole. It also helps you discover what tax deductions you can claim.
Let's take a look at how bookkeeping and proper accounting will help your business.
1. Pay Taxes for Your Business On Time
Running a small business requires paying taxes on time to avoid penalties, late fees, or repercussions that may negatively impact your business. If you fail to pay the taxes owed based on your company's income, you may have a lien placed on your bank account or the bank account of your business if action is not taken immediately.
Taxes are extremely important when it comes to managing and running a small business, whether your business generates $30,000 annually or more than $1 million in profit a year. It is also essential to remember that payroll taxes are equally as important as both state and federal taxes when you choose to hire either part or full-time employees in addition to freelance contractors. Paying payroll taxes allows you to continuously employ others to work for you and provide their manual labor and services for the benefit of your business.
With a professional bookkeeper or software, keep track of your total income, expenses, and potential deductions each quarter throughout the year. Small businesses typically pay taxes quarterly, allowing companies to pay their dues in smaller amounts every three months. Once you begin using accounting software, it is much easier to so keep track of taxes, fees, deductions, and expenses.
2. Review Potential Errors and File Disputes
Once you understand the ins and outs of managing the finances of your small business, it is much easier to see and pinpoint potential bank errors, invoicing mistakes, double charges, strange charges, and disputes. Whether you believed you have overpaid in taxes, not received enough of a refund, or if you have been paying for services that are no longer necessary for your business, understanding the financial aspect of running your business can come in handy at the most unexpected times.
3. Get Approved for a Business Loan
Updated books and accounting records can also help you get approved for a business loan. When you apply for a Small Business Loan, the lender, whether a bank or an alternative lender, will ask for your business' financial statements. You can download bank statements from the Internet, however, it's better to have something that fully portrays your business' expenses and revenue. This is called an Income Statement.
4. Keep Better Track of Profitability and Growth Opportunities
A major advantage of understanding finances and why it is so important for small businesses is the ability to keep better track of sales, profitability, as well as growth opportunities you have for your business and brand.
Bookkeeping is one of the best ways to predict whether or not a product or quarter will be profitable for your business based on past predictions and results. Learning to utilize the data you enter, organize, and store in your software is extremely beneficial whether you have plans to scale your business or if you want to ensure it remains profitable and relevant to your core audience of customers and clients.
Understanding the importance of finance and its significant role is imperative anytime you are taking charge of running a small business. With the right software and a complete understanding of your responsibilities and obligations as a small business owner, gain peace of mind knowing that your business is operating properly and efficiently at all times.