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Small Business Bookkeeping: Why Bother?

Being in business is about adding value in ways that generate profits.

Businesses that don't generate a profit ultimately go out of business. As a small business owner, if you don't have a bookkeeping system you don't know what's going on in your business. It's that simple.



Small Business Accounting and Bookkeeping Learning Topics:



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Know the Numbers

Business = Profits | To know where you stand at any time in terms of profitability means that you must know the numbers. To know the numbers, you must have a bookkeeping system.

Surprisingly enough, smaller businesses, and particularly part-time self-employment businesses, often do not think that a bookkeeping system is necessary. If they have only one or few products and services to sell, or few sales transactions each month, they may think that they do not need this extra work. This assumption is not only inaccurate but also dangerous for a variety of reasons.

Maintaining Profitability | Most importantly, you must know at any moment whether you are making money or losing money. In simple terms, this means tracking how much it costs to deliver a product or service (the variable costs or costs of goods sold) against how much you sell it for. At a more detailed level, this process also includes accounting for overhead costs, which are not directly related to unit sales, and which help you to determine your breakeven level (the minimum level of sales you need to cover both your variable costs and your fixed or overhead costs). Overhead costs may include facilities, phone and electricity expenses. The point is that by having a bookkeeping system, you will know at any moment how profitable the business is. Perhaps even more importantly, you will know when it isn't and take action before you get too far in the hole.

Reporting Requirements | Another reason you want to have a bookkeeping system is that you must maintain accurate records to support federal and state tax reporting requirements. While states handle business taxes differently, all require you to report income and expenses. This includes purchases, sales, payroll and all other financial transactions.

You may need to share information about your business with others if you have outside investors, a business loan, suppliers and others who possess a legitimate interest and concern for how your business is doing. For example, investors are likely looking for a return on their investment. Lending institutions, such as those who offer U.S. SBA-backed loans will require detailed financial information up front to help determine if the business qualifies for a loan, as well as require routine financial reporting after the loan is issued to monitor progress. Suppliers also prefer to know that you have a track record for paying your bills on time before they will issue credit terms for your purchases. Of course, all of these issues are significantly addressed by having an accounting system at your fingertips that conveys that you are profitable, along with who you owe how much to and when it is due.

Plug-and-Play | The good news is that bookkeeping is a well-established process that has remained fundamentally the same for decades. Further, establishing and maintaining good records does not have to be complex or expensive. There are excellent choices available for setting up a reliable bookkeeping system on your PC or Mac. There are specialized bookkeeping software packages for Accountants, General Business, Contractors, Manufacturing and Wholesale Businesses, Nonprofit Enterprises, Professional Service Firms and Retail Operations. There is also the option to forego the hassle of having to maintain and update an in-house bookkeeping software application by going with a totally secure online bookkeeping system.

Did you know?

"...that QuickBooks offers a 30 day free trial so that you can try out different levels of cloud-based accounting software packages? There are small business bookkeeping software options appropriate when starting your business, growing your business and for adding features for purchase orders, inventory tracking, preparing 1099s and tracking employee time."

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Other Small Business Accounting Learning Topics:
Bookkeeping | Accounting #101 | Accounting Software | Accounting Training & Support

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Note: This information has been compiled by the Knowledge Institute for Small Business Development (KISBD) for educational purposes only in order to convey a general overview of the options and related services available to small businesses in the subject areas introduced. Content is provided on an "as is" basis and is not intended to be an exhaustive representation, nor does it provide advice or create a customer relationship between KISBD and its sponsors, buzgate.org, its affiliates and any other organization named herein, and any reader.

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