When the topic of bookkeeping comes up, you probably figure that it's something that can wait until later. You know that accounting is important, but there just aren't enough hours in a day to manage the books on top of everything else you are already doing.
Bookkeeping, no matter how insignificant you think it is, isn't something that should be left until later or ignored completely. Most of us don't understand why it's important, how it can benefit us, and how it can save us money. I know I didn't.
When I first started, I avoided it because I figured it wouldn't be difficult. And I waited to do it, which ended up costing me and my business money. When tax season came around, I had to scramble to find receipts, statements, and invoices. Then, I had to pay an accountant to help me sort everything out.
Because I was doing everything so last minute, I had a hard time finding an available accountant--which caused me to miss out on $2,000 of tax credits, mainly because I hadn't done any bookkeeping and was disorganized. To prevent you from losing money, I've compiled a list of five reasons bookkeeping should be part of your business routine:
1. Better management of time and growth.
Having someone that takes care of both the monthly financial reports and the business taxes makes sense. They already know what your business is, saving you time and money. Plus, when the business inevitably grows, you'll already have the resources to manage it.
They can help you navigate uncertainty and find opportunities, especially as a startup or a freelancer. When I first started out, I missed out on a chance to attend a travel conference because I didn't think I had the budget for it. Turns out, I did have the budget--and I would've been able to write it off on my taxes.
2. Get returns for your expenses.
Owning and operating a business comes with some perks. Some things you can write-off are travel expenses, phone, utility, and internet bills during tax season. But taking advantage of these benefits is impossible if you've been keeping your personal and business expenses together.
Business credit cards are my lifeline. They keep my business and personal life organized for my bookkeeper, and they earn me rewards which I can use to network and grow my business.
3. Prepares you for challenges.
Getting audited is stressful, but it's even worse if your business and personal expenses are tied together or you don't have records to back up your claims. The same can be said about trying to figure out where losses are coming from. If you're a freelancer, your deductibles can raise some eyebrows and can cause you to be audited.
I have a friend who once had an employee stealing from her. The employee was saying that checks must've gotten lost in the mail but in reality was keeping the cash. The bookkeeper noticed small amounts missing here and there, and mentioned something. After an investigation, the employee confessed and agreed to seek help.
Extreme, sure. But not unrealistic.
4. It helps you get approved for loans.
Banks and lenders are skeptical about getting into a financial partnership with freelancers. The main reason is that as a sole proprietor, you are 100 percent liable for any losses and debts that your business incurs. When something goes south, you're held personally responsible and anything you own can be used as collateral, such as your home and vehicle.
Another reason why getting a business loan or mortgage is difficult is because you don't have the proper records. My bank was hesitant to lend to me when I first started because I didn't have detailed records. I went back after hiring a bookkeeper and had a completely different experience.
5. You'll have clarity when making decisions.
By having your books together, you can see where your profits and expenses lie. Then you can use the information that you have on hand to shape your budget. You'll be in a better position to see ways you can scale in your business and cut things that don't serve you.
Although it's easier said than done, bookkeeping doesn't have to be stressful or time-consuming. There is software out there that let you handle your books yourself. But if you're like most freelancers and already have way too much on your plate, consider bookkeeping software to help.
I highly recommend using one of the many tools available, even if you can't afford a bookkeeper just yet. I have been able to explore more opportunities and grow my business, thanks to the financial roadmap that my bookkeeper provides.