7 Benefits of Strong Bookkeeping in Your Small Business
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Setting Up Proper Bookkeeping and How it Can Help Your Business
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An organization’s solvency and liquidity are often the driving factors in decision making across all functions, and the most efficient way to support these decisions is to maintain accurate and strong bookkeeping. Keeping an easily accessible running report of your business’s finances will help optimize your strategy planning and your evaluation of key business decisions and their potential return on investment.
Within your bookkeeping, you can build in a budget for your taxes, stay on top of accounts payable and receivable, organize your daily transactions, and more. There are many strategies to getting your bookkeeping right and many ways to automate these processes to reduce the margin for human error and ensure that records are always up to date. Investing in your bookkeeping brings a range of benefits to your business, each of which are crucial for both your day-to-day and long-term operations.
Minimize CRA Audit Headaches by Establishing a Proper Paper Trail
Having an efficient bookkeeping system in place will help your business prepare for the possibility of being audited. With all of your income and expenditures tracked regularly, you’ll be able to streamline the process of an audit by quickly and effectively providing the auditor or the CRA with all necessary documentation for review. Maintaining all of this information on a rolling basis will help save both time and money when it comes to your audit, and having relevant documentation easily available during the process will also help you avoid additional penalties or fees.
Efficient Creation of Ongoing Financial Statements for Stakeholder
When presenting to a board of directors, reporting to shareholders, or working with potential investors, you’ll need to provide a snapshot of the company’s current financial situation and potential for future earnings. These financial statements will be immensely easier to compile when your business has accurate and up-to-date records to refer to throughout the process. Your cleanbookkeeping will allow the accountant to focus on preparing the adjusting journal entries instead of tidying up the mess. You will also save on the extra fees that accountants charge for the clean up.
Keep Track of Cash Flow
Like the financial statements you’ll prepare, maintaining strong bookkeeping throughout the year will help you maintain a comprehensive overview of your company’s cash position and cash flow. When you’re considering financial decisions of any caliber — from attending a trade show, sponsoring or donating to a charitable organization, whether to hire a contractor or freelancer and beyond — an accurate reconciliation of your cash flow against your annual budgets will provide a quantitative foundation from which to weigh your options. Even more significantly, your ability to pull an instant snapshot of your business’s liquidity and solvency will depend very heavily on the accuracy and strength of your bookkeeping.
Catching and Correcting Any Errors Before Year End
By maintaining your strong bookkeeping, you’ll mitigate the possibility of coming to the end of your fiscal year with books that don’t reconcile. Accounting errors will always arise, but the more time you’re able to review your records, the easier you’ll be able to identify and correct anything that doesn’t align. Strengthen your bookkeeping even more by establishing a system that aims to minimize errors from the outset and provides a process for quickly spotting and fixing anything that does arise. That way, your accountant can file your taxes promptly and prevent any hefty interest/penalties
Expediting Decision Making Response Time with Updated Forecast
Workplace volatility has increased significantly over the past few years, and many businesses found themselves unprepared to react swiftly to an unprecedented need for flexibility in their business models. Situations like these can arise with little warning, and in those events, having a strong repository of logs to refer to will prepare you to make more insightful decisions in a more agile way. By having completed books and financial statements, companies can easy update their financial models with the last month results. The updated forecast will be a tool for management to use to make decisions quickly without fully disrupting the day-to-day; the ability to navigate this equilibrium during times of volatility will help your company remain profitable, stay on track for your growth goals, and increase your competitive advantage in your market.
Improving and Strengthening Financial Analysis
Like the financial statements you’ll prepare, maintaining strong bookkeeping throughout the year will help you more efficiently evaluate your performance within your market and your overall profitability as an organization. Comprehensive records will allow easier tracking of key performance metrics, which in turn will help you make more informed business decisions, like whether to make investments or extend credit or introducing a new product line. When your records are collected on a rolling basis, you’ll also streamline your financial analysis and save both time and money throughout the process, providing more time to focus on the recommendations and how you’ll synthesize and implement them moving forward.
Forecasting Profit and Growth Opportunities
Your financial records and statements will help you track your profit month-to-month, year-to-year, and at whatever additional rates your firm sees relevant via financial reporting. An understanding of the level and cadence at which you’re currently operating — paired with your financial analysis — will help you begin to assess what projected profit and growth opportunities are within reach. From there, your business’s leaders, board, and key stakeholders can strategize potential investment partners, scaling opportunities, and additional growth goals. Your processes can adapt accordingly, and, because you’re keeping current records, you’ll have a keen overview of the capital and resources at your disposal to begin strategizing toward those new goals.
Bookkeeping is not simply a good idea for your business, it’s a necessity; your organizational health and efficacy are heavily reliant on the accuracy of your financial records. Keeping a continual eye on your numbers and processes can help ensure that you’re operating profitably, legally, and efficiently, and can help you reach your full potential as a company.
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