Why should I care about bookkeeping?
I suspect that paperwork is not the reason that you started your business. In fact, I bet you have a pile of papers that you just can’t bring yourself to sort. Bookkeeping isn’t the most exciting thing in the world for most people, but it’s absolutely vital to the survival of your business. As an owner, you are responsible for the health of your business, which means asking a lot of difficult financial questions. Let’s look at a few questions you should be asking, and how bookkeeping can give you the answers.
Am I making a profit?
Making a profit is more than just how much you have in the bank or how much you sold last month. A profit means that you have the resources to invest in your business (and yourself), which is vital to growth. You may feel like you are running a successful business because you have many clients, lots of cash, and adoring fans. However, if you aren’t adequately tracking expenses in a timely manner, you may actually lose money. By tracking all your financial transactions, you can see how big (or small) your profits are and make adjustments quickly, rather than waiting until you realize your bank account has dwindled. To build a sustainable business, you must focus on profits, not just sales.
How should I price my products?
What do you currently include in your product pricing? Many small business owners consider only the specific supplies and venues used for a project, plus a little extra for their time. This pricing structure means that you might be charging much less than you really should. All businesses have expenses that aren’t necessarily related to a specific client. These could include things as small as paperclips or as significant as insurance and storage. Proper bookkeeping gives you insight into your expenses, and allows you to price your services appropriately to sustain the business.
What can I deduct on my taxes?
Most business expenses can be deducted on your tax return at the end of the year. The problem, of course, is that you have to remember what you paid for and have proof in case of an IRS audit. Without a system to record every expense throughout the year, how will you know what you can deduct? Will you remember at the end of the year that you stopped at the store to pick up extra supplies for a project that happened in February? Probably not. When you stick to a system year-round, you can confidently give your accountant the information he or she needs. This system can lead to reduced taxes and much less stress at year-end.
Entering all your transactions may seem like a lot of work, but the data analysis you can do because of this process will give you immeasurable benefit. Next week we will discuss an often overlooked key to success for your bookkeeping system. In the meantime, feel free to email me with any questions you have.