Posted by Jonathan A. Patterson, CPA, CVA.
Bookkeeping is not likely the first item on a business owner’s list of things they enjoy about running their company. However, it is one of the most essential tasks for success. Bookkeeping entails recording all the financial transactions and monetary events that occur in the business. Every detail should be meticulously accounted for and dated. This financial data is an important business tool used for business forecasting and planning. To help clients, prospects, and others understand the impact of effective bookkeeping, Belfint, Lyons & Shuman has outlined key areas below.
- Cash Flow Management – Accurate bookkeeping records are needed to analyze the overall financial state of a business. Without up-to-date records, management is not able to understand how much profit was earned or what losses were incurred. These records also provide insight into whether a company is growing, stagnant, or declining. This information is essential in evaluating the overall business and its potential to meet financial goals. When management has a firm grasp on performance, they are able to better strategize and make appropriate decisions.
- Day-to-Day Management. Recording day-to-day financial details will help keep track of vital data needed to run multiple areas of the business. For instance, a quick glance at a report from a well-run accounting system will reveal how much money is owed and from which customers – along with any overdue accounts. Management will be able to keep up on business expenses and deadlines for things such as loan payments, rent, taxes, and recurring monthly bills. This can save or reduce costly fees and other penalties.
- Guide Financial Decisions. Proper accounting data helps the business plan ahead and make financial decisions with clarity and perspective. Forecasting business needs and planning for purchases and other miscellaneous business expenses will become easier with the right financial information. Management will have access to the data needed to set projections, budgets, and goals for the business. They will also be able to make necessary short- or long-term adjustments – such as increasing the price of certain products or services or cutting expenses to offset a lack of profit in a particular business niche, put more resources and effort into a growing service, or plan for an additional hire.
- Keep the IRS at Bay. An audit may be one of most feared ramifications of improper bookkeeping. It’s no surprise that discrepancies in financial records can result in faulty tax returns, which could cause the Internal Revenue Service to come knocking at the door for an audit. To complicate matters, if the company is audited, the business is much less likely to have the necessary information ready and available for examination. Management might have to scramble to piece financials together, which opens the business up to more errors – and scrutiny.
- Business Loan Application – If management is interested in taking out a loan or some other form of bank financing, the bank will require financial data to prove that the business is in good economic standing and able to pay back the loan. Banks typically want to see copies of statements, cash flow budgets, projections, and other applicable financial data. An effective bookkeeping process will make it much easier to generate the needed report when requested.
Proper bookkeeping is the foundation for effective and efficient business management. When it’s not handled with the necessary attention to detail or investment of time, unpleasant financial consequences can arise. If you need assistance with your company’s bookkeeping or have questions about proper financial management, Belfint Lyons Shuman wants to help! For additional information call us at 302.255.0600 or click here to contact us. We look forward to speaking with you soon.