7 years ago, I saw a business collapse due to poor bookkeeping and accounting practices. Hard to believe, but true. Stacks of paper started piling up in the ‘accounting’ office, clients weren’t invoiced on time so payments came late. The subcontractors were then waiting months to get paid and eventually quit, so there was nobody to do the work. Clients left and all the revenue dried up. There were a few other complicating factors, but this story definitely illustrates the importance of bookkeeping and accounting practices.
We hope that you have professional help to set up your bookkeeping processes in the early stages of your business. It takes effort/expense to do it right, so if you’re on the fence about how much it will actually help, allow us to illuminate how clean bookkeeping processes in the early stages of a business can help you later on.
Get Started on the Right Foot
When starting a new business, it’s imperative to keep your finances in good order. The biggest influence this will have is knowing what your expenses are. We’ll go into further detail on this a bit later but as an umbrella statement, good bookkeeping means knowledge of the health of your business.
It’s always easier to patch the hole in a boat before you go in the water. When you’re in the early stages of your business, getting into the habit of tidy bookkeeping will keep you from wasting time and money in the future trying to clean up while keeping up with current work.
A good idea to help out with this initial setup is to have an Accountant get everything organized and train you and your team. This allows you as the business owner to keep your focus on developing other parts of the business. They can implement good habits and make sure you are on the right track.
Know Where Your Cash is Headed
Cash flow forecasting is another key “must do” for a business owner, and it’s impossible to do without proper bookkeeping. Predicting customer payments and future expenses depends a great deal on accurate and complete data.
If you have a good record of what your expenses have been in the past months, this can help you predict what your upcoming months will look like. You can take action confidently if you understand your cash forecast – for instance making a key hire, purchasing equipment or stretching for revenue.
Good bookkeeping can surface any SaaS subscriptions, vendors, or additional expenses that you started up months ago, but have become obsolete. Sometimes these services are still active and are still costing you money, even though you don’t need them. Clear books will help you identify these and you can make the decision if it’s time to get rid of them.
You have a fiduciary responsibility to the corporation to make sure that money doesn’t go missing. That is to say, you are on the hook if money gets lost or stolen. Nobody likes to think about employees defrauding the company, but it happens. Similarly, we often think that cyberscams happen to ‘other companies’. Inventory shrinks, timecards are padded and money leaves the company by accident. This does happen and ‘internal controls’ are part of the solution to protect yourself.
If you have accurate and up to date bookkeeping you can spot problems before they become big problems. If you have procedures and technology in place for initiating and approving funds transfers, inventory counts, payroll, etc. then you improve internal controls and reduce your risk.
Internal controls aren’t all doom and gloom. A well defined procedure for handling employee expenses, reimbursements or company credit card purchases gives everyone confidence to take action and reduces confusion/questions for managers to handle.
Less Stress Down the Road
Tax season will be a breeze: there are benefits to filing taxes early – for instance: avoiding penalties. To avoid extra stress around that time, having your books clean and organized will keep you from having to rummage through past months to find all the right documents.
Everything is where it should be: It’s easy for an outside advisor, mentor, investor or banker to see the financial story the books are telling if they’re always done consistently.
Ready for audits: Audits are a lot less stressful when you’re prepared. Bookkeepers will have everything neat and ready to go, making the whole process easier for both sides. Then it’s done with.
In short, there is no downside to having your bookkeeping processes in order as early as possible. It leads to stress-free operations, simple tax filings, and great oversight about your company’s health. If this is something that you cannot achieve internally or with an internal hire, outside firms are an excellent option. Feel free to reach out to the Coffinity bookkeeping and accounting team to see what your company needs in place, we can help get you set up for success.