If you’ve been working in your business for any length of time, you probably know that at the beginning you’re going to have more money going out than you do coming in. You figure, you haven’t made any money yet so why should you even worry about keeping good financial records, right? You can get to it when the money starts rolling in. I’m glad you asked. The beginning of your business (even before you have your first customer) is the perfect time to nail down your record keeping system.
MAKES TAX TIME EASIER
If you keep track of all your income and expenses throughout the year, by the time you get to year-end, everything is done. There’s no searching for receipts or trying to remember where you drove for business throughout the year. Plus, if you use a software package like Quickbooks or a free service like Wave, tax time can be as simple as a few clicks from your keyboard. If you’re doing your own taxes it can significantly cut down on the time that you spend. If you work with an accountant, you just became their new favorite client.
MAKES IT EASIER TO CREATE A BUSINESS PLAN
By keeping up to date financial records, you will be able to instantly understand how your business is doing for a financial perspective. You can use this information to create projections for the future and to make plans for your business. If you are creating a financial plan in order to seek financing through investors or through a loan (or even if you plan to) having your accounting records in order can make the difference between getting the funds you need in order to boost your business and continuing to bootstrap.
MAKE IT EASIER TO EVALUATE WHAT’S WORKING
Maybe last year you invested a bunch of money in Google Adwords campaigns and only received crickets in response. This year, you spent a few hundred dollars on email marketing, but grew your revenues threefold as a result. How would you be able to evaluate what’s working and what isn’t without having that data available? Staying on top of your financial records can make a huge difference in being able to quickly make decisions about aspects of your business that are working and those which should be stopped immediately.
YOU’LL KNOW IF AND WHEN IT’S TIME TO THROW IN THE TOWEL
The reason that many businesses fail is because they don’t have the cash flow necessary to cover their operating costs. They’ve worked so hard to get their businesses going, but can’t turn a profit before they run out of money.
If you always know where you stand, you’ll be able to determine whether your business is profitable and sustainable, you need to think about seeking financing, or it’s time to call it a day and try a new venture.
Keeping good financial records is an essential part of growing your business. It is nearly as important as the business itself. It’s never too early to start with good habits. Having a good system now will make your business finances a breeze as you grow.