The New Year is not just a time for making resolutions. It is also when bookkeepers take a look at the previous year and “close the books” on all the financial activity. This can be an incredibly stressful period for any company whose records are not in good order. A great deal of time and effort is going to be spent trying to make things add up. There are some very critical reasons why it is important to have a clean set of accounting books and having concise ledgers.
This is an obvious reason for keeping a clean set of books. Nobody wants to have the Internal Revenue Service come down on the business with a lengthy tax audit which could result in stiff penalties. Yet, at the same time a business owner has to consider whether he or she is paying more taxes than necessary. Sloppy ledgers can lead to inaccurate amounts of taxable income and may not take in consideration the tax breaks that a business is entitled to have. By not having clearly understandable records a business may penalize itself inadvertently due to overpaying taxes.
Organizing the Daily Business
Taxes aside, having a clean set of books helps a small business owner better manage the cash flow, and have a more complete understanding of the financial situation. Bookkeeping follows a list of rules as to where business income is to be noted and to what accounts. For example, if a business owner moves money from his or her personal account and deposits it into the corporate bank account, that should be noted as a capital contribution. Loans a business owner makes to the company can either be loans or paid-in capital. Bank interest ought to be accounted for as Other Income. These are all bookkeeping practices that enable the owner to have a very clear picture of the money situation. Poorly kept books create confusion as to where money is coming from or where is the money being sent. It is not always a catastrophe, but it does mean that long hours may have to be spent trying to correct mistakes and organize the ledger.
Financial Statements Are More Clear
Expansion requires funding and a small business may have to take out a bank loan or approach potential investors. Either source of cash will insist on reviewing financial records prior to making any commitment. A clear set of books provides a solid picture of the company’s financial situation. The accuracy of the figures removes any potential doubts and that is critically important when seeking to secure needed capital. Information from competently arranged ledgers help a business owner better explain the financial status of the company, where the monies are being spent and where the revenue is coming from. The less confusion in a loan presentation, the better will be the chances of getting the money. A clean set of books is consequently invaluable.
A company sets up a budget at the beginning of the year to guide activity throughout the months. A clear set of books determines how well the company is adhering to that budget and if adjustments need to be made. This is obviously very beneficial in planning and in responding to any emergencies that may arise. It is understood that accurate recording of financial information can be just a little bit tedious. However, such detailed work means there is no confusion or uncertainty when it comes to the money. That is something any business definitely wants to have.
Bookkeeping is best done by professionals in the field. Some people may think that all it takes is accounting software, but a bookkeeper knows exactly where the figures are supposed to go. There is none of the guesswork that a layman may accidentally use. A good bookkeeper will question the figures and be sure that amounts are in the right columns. The result of his or her professional commitment to task are financial statements that are clear and concise, tax information that is accurate and adheres to the tax code, and a business owner knowing at any given time the direction in which his or her company is heading. These are all benefits that permit a company to move confidently in a marketplace full of intense competition.