5 Reasons Why Bookkeeping Is Important (And How To Start) 2019
Updated: Sep 12, 2019
You don't want to do your books, and that is understandable.
Start-ups are generally run by passionate, dream-driven, creative Entrepreneurs, that do not want to spend hours on their bookkeeping.
Here is why you should:
Depending on where you are in the world, taxes span from complicated to impossible. Coming to year-end, with no real idea of where you business is or how much you have made over the tax year can be a disaster. You'll either;
Pay a hundreds or thousands for an accountant to rush your books and file your taxes.
Spend hours and hours pulling your hair out trying to remember what the $250 named "purchase" on your bank statement last January was.
Either way, you will end up with an un-planned for tax bill and a lot of unnecessary stress. When you undergo monthly bookkeeping, you will know exactly how much you are going to have to owe, and spend much less time at year end filing your taxes.
It is easy to know how much you have in the bank today, but do you know how much you owe? How much you are owed? What your company actually owns? How liquid your business is? What your business is worth?
All of this is made easier when you stay up to date with your bookkeeping. You will know how much you spend in each area, what your margins are, where you need to cut back, and where you can afford to spend more in order to keep your business profitable and growing.
3. Getting Investments or Loans
As mentioned above, when you keep your books up to date, you will know exactly how much your business is worth. Investors and Banks will not invest in you or loan to you if you cannot show them a set of accounts. Having your books complete and up to date makes you look more professional, and can help you both come to an agreement on amounts and terms.
4. Planning Financials Moves
Knowing where you business stands allows you to plan for your next big move: taking on a costly project, or investing in new equipment, stock, or advertising campaign. Or maybe you think that a certain line of product is doing great, but after looking at your books, the margins are really small. This could be an indicator to stop putting money into this product, and instead focus on the products with larger margins.
At the end of the day, you can lay down to rest, and know exactly where your business stands. Keeping on top of your accounting will give you peace of mind.
Great, now, as you probably already could, you can admit that bookkeeping is important.
Now, where do you start?
Open a bank account or Paypal for your business. This will make it infinitely easier to organize your business transactions.
Once a month, sit down and categorize your expenses. There are great services out that there you can connect directly to your bank to make this easier: Xero, Quickbooks, Freshbooks, ZoHo, Wave Financials, just to name a few.
Keep a tally on what you owe, and who owes you. Most agreements have specific details; interest payable, how often you pay, etc. Write this down. Figure out how much you owe and are owed in the next month/quarter/year.
Own an asset? Awesome. Write down the cost of each asset, and how long you expect it to last. As a small business, the easiest depreciation policy is straight line (i.e. divide the cost by the years, and that's how much you should depreciate your asset each year)
The main thing is: keep track of everything. Even if it's a messy excel spreadsheet, at least you have a starting point for when you do hire an accountant to take care of your accounts full time.
Check out are article: 10 Financials Musts For Your Start Up Or Side Hustle
Questions? Leave a comment below and we will do our best to answer your questions as quickly and accurately as possible.