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Why Business Needs Effective Bookkeeping?

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Bookkeeping in Canada

Accounting and Bookkeeping for your small business may not be the most fun aspect but they are the most important.

Why Business Fails?

The study showed that 29% of small businesses failed because they ran out of cash and 23% failed because they did not have the right team. 18% of small businesses failed because of pricing and cost issues and 17% failed because they lacked a business model.

These four ways equate to 87% of why businesses fail. Running out of cash, not having the right team, pricing and cost issues, and a lack of business model can all relate to not having the right accountant/bookkeeper or not having one at all.

If that was not convincing enough, here are reasons why your small business NEEDS a bookkeeper.

  1. Budget

To properly budget you need income and expenses organized correctly. With a budget, you can help plan for future expenses of your business and better anticipate and allocate costs.

  1. Tax Preparation

As a business owner, you may have found yourself scrambling come year-end to get all the necessary paperwork to be able to file your tax return. Not only can bookkeeping be more efficient but also cost-effective. If you are paying a bookkeeper to keep your books up to date over the months, less back work is needed by your tax firm to get your documents ready to process your return.

  1. Organization

Generally, five main parties will be interested in your company’s financial records – the CRA, employees, customers, investors, and lenders. Being able to provide the information requested by these parties is crucial to running a successful operation. By definition, bookkeeping is the organization of financial information. Keeping your financial records organized makes it easier to locate and provide to appropriate parties.

  1. Analysis

Financial statements are a product of bookkeeping, by using those statements you can better understand where your business stands financially. Allowing you to analyze the strengths and weaknesses of your business so you know what to capitalize on or what to improve.

  1. Decision Making

After analysis comes decision-making. To make the most informed and accurate decisions you need to see the best and most updated information on your business.

  1. Planning

To plan for the future, you need to see the past performance of your business. Bookkeeping will provide you with a clear-cut picture of what has and has not worked for your business in the past. Not only will it help you plan but it will help with tax planning as well. For things, you may want to do in the future if it may be a tax benefit come tax season.

  1. Reporting To Investors

If you have investors in your business they need to know the financial performance to see the value of their investment in you. Providing investors with date financial statements allows them to make well-informed and better decisions about the money they invest and where. Additionally, keeping your investors happy is key, providing them with this information not only keeps them happy but maybe opens the door for them to invest more or bring in other investors to continue your dream of growing your business.

  1. Track Profit And Growth

Bookkeeping shows your business’ profitability. The income statement is one of the documents that is included in the financial statements you receive from your bookkeeper. This allows you to track whether your company is making money and how that compares to years passed. With these months and years of income data, you will be able to see trends and gain a greater understanding of your business cycles.

  1. Better Cash Flow

One of the many things your bookkeeper will do is categorize your spending. Labeling their revenues, expenses, liabilities, receivables, and more. All in all, showing you the money that is coming in and money going out. Allowing you to see if there are any outstanding balancing and in which period they occurred. Which can help improve your business processes and execution work.

  1. CRA Audit

Last but not least, the law requires you to keep financial records for your business and to keep them separate from your personal records. If the government receives a red flag on a tax return you filed they could require tour business to be audited. If you do not have to date financial record it makes that process much longer and more difficult. If you are keeping your records up to date and accurate it may even prevent the IRS from requiring an audit of your business.

In Conclusion

Keeping financial records up to date for your business might be the most important aspect of keeping your business afloat. As stated earlier the four main reasons small businesses fail are because the business runs out of cash, they do not have the right team, price and cost issues, and a lack of a business model.

If you have a bookkeeper you have a better idea of the money coming in and out, allowing you to make the right decisions to not run out of cash. Having a bookkeeper on your team allows you to discuss the financial aspects of your business and helps you see how you can re-evaluate your team based on the money you are spending in those categories. With that information, you can also better see what you are spending on items to better price your items to hopefully illuminate any pricing or cost issues. And finally, having the financial aspect of your business rooted helps you to better plan in other areas and create a solid business plan.

All this to say, bookkeeping is incredibly important. Filing Taxes can help in all of these aspects as well as processing your tax return. Allow us to be a member of your team and get your business financials under control.

Filing Taxes concisely deals with several complex issues; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. 

Our experienced and professional team at Filing Taxes is here to set you on the right path considering your personal business situation. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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