Running a business may seem overwhelmingly rewarding, especially in today's outlook. With small businesses thriving online and successful low-capital startups emerging everywhere, one can say that it must be easy to run a business. Many business industries scale and expand so quickly once they find the right niche or product to sell. However, note that the cost of having great success also comes with the great responsibility of making sure all business records and financial data are intact and correct.
Accurate bookkeeping can help the stakeholders make crucial business decisions. Reliable financial data is key to identifying the next step for the business venture. Apart from having the necessary data available, there should be a system, which ensures that all transactions are appropriately categorized for financial reports to be prompt and accurate.
The following business elements explain why bookkeeping is important:
Cash
Cash is the lifeblood of the entire operation. Everything in a business for profit is driven by cash, so it is imperative to ensure that all cash receipts and disbursements are accounted for. Constant reconciliations must be made between the movements in the bank statements and the books. We are in an age wherein almost all cash transactions are done via bank transfer or credit card. Although the bank statements automatically show the merchant or recipient for such transactions, the habit of appropriately categorizing it right after it takes place goes a long way when it is time to summarize those financial reports.
Inventory and Cost of Goods Sold
When you buy inventory from a supplier, you need to account for it against the cost of goods sold. This amount is not just the sum total of all the payments incurred to the supplier. A $5.00 mug you have been sourcing from a reliable supplier may look profitable if you sell it for $20.00, but have you considered how much it costs to ship it to the warehouse and the customer? How about the customs fees and the various third-party salaries behind the shipment? There are numerous factors to consider when computing the actual selling price of a product and it will only get more complicated as the number of products or services increases. Having a reliable system for computing the cost of goods would be advantageous when reviewing the profitability per product or determining if the business is better off without it.
Receivables and Payables
Keeping track of one’s own dues and collections is still a manageable task for small businesses, but once the business starts to scale, overlooking new and old transactions flooding your ledgers becomes a whole ‘nother ballpark. Knowing which customers are prompt and reliable would be helpful in making a major decision, especially if the cash flow is currently tight. Setting time to organize a list of your supplier’s terms and due dates would maximize your cash position. Take advantage of early-bird discounts from specific vendors.
Sales
All cash receipts may pertain to revenue or sales, but you must also keep track of which ones to be recognized as other income. Some cash inlay may pertain to interest income, which should not be part of your main revenue. Setting unique tags and keywords per sales category will also be a big help in determining which sales products, channels, or demographics you should focus your market study and improvements on.
Operating Expenses
Trend analysis with expenses is vital when it comes to forecasting budgets and sales quotas for the next period. Regularly preparing a monthly Profit and Loss statement might seem like a tedious job, but it will be an excellent basis to see how the business is currently standing. With so many online subscriptions and recurring expenses nowadays, one must keep track of which is necessary or not to minimize losses. It is also vital to accurately categorize all expenses as some may have different tax rate deductions. When it comes to looking at the bottom-line figures, this will be a great way to maximize profits.
There are many tools and platforms available online that can aid business owners in having top-notch accounting records. However, it is also essential to make the data as straightforward as possible in order to generate any financial report on time. Bookkeeping is and will always be a beneficial cloud-based function everyone should take advantage of. Meanwhile, data protection is an important service that entails handling sensitive information, which you should only delegate to a reliable team.
Conclusion
In conclusion, it is worth maintaining an accurate bookkeeping system regardless of the nature of your business. Think of it as some sort of investment. The earlier you start properly bookkeeping your financial records, the easier it will be to transition to bigger operations as your business grows.
You do not have to be a professional accountant in order to maintain books, but as the business undergoes expansion, you should consider hiring experts to ensure that the necessary accounting records have a solid foundation for the upcoming years. You need someone who can perform the tedious process of ensuring all financial reports are of the government's standards when tax season comes. With Unloop in the picture, keeping your books will be a breeze.