One of the key factors in determining the success of any business is its accounting process. A good look

at the financial statements helps entrepreneurs assess whether they are spending money to good use,

or they are using it for unnecessary expenses. Any business owner seeks to maximize profits and

minimize costs. However, with poor accounting and bookkeeping processes, many businesses are

doomed to fail.

 

At this point in our time where anyone with the vision and passion can build a startup, raising capital is

as important as maintaining the books. Properly overseeing the financial operations will lead to success

and even expansion, as long as the right professionals are hired to perform the job. It is not a matter of

simply subtracting your sales and expenses.

 

There are three key reasons why entrepreneurs must not take for granted the importance of proper

accounting operations. While profit is the goal, managing the books is also a part of the formula for

business success. If you are on the road to building your own business, live by the following principles.

 

1. Small businesses fail due to poor accounting.

Keep this is mind as you build your business. Whether you have an in-house or outsourced team

of accountants and bookkeepers, embrace their importance. You don’t want to spend your time

managing the financial statements when you could simply use the hours spent on that task by

developing customers, strategizing, building networks, and more. There are rules and principles

these professionals have spent years studying. Plus, it is guaranteed that they fully understand

they their only role to your business is none other than securing records such as your profit and

loss statements, balance sheets, and tax preparation documents. Having a good bookkeeper you

can rely on is a cost-effective approach to ensuring timely money management reports. He can

help you set up invoice systems, set up terms on the necessary monthly payables, keep official

track of monthly spending, so on and so forth. You don’t want to fall into that nightmare when

you are working fast and hard but then all of a sudden just because of a small glitch in your

accounting statements, you find yourself unable to keep up with your financial obligations.

 

2. You pay higher taxes when you don’t keep track of your expenses.

Federal and state income taxes, insurance contributions (SSS and Medicare), state

unemployment insurance tax, and other forms of tax liabilities may increase if you don’t pay on

time. On the other hand, purchasing equipment and things for your business allow you to enjoy

tax deductions. When you have the right bookkeeper, you won’t miss out on the things that

should be accounted as tax deductions. Costs like health insurance premiums, utilities,

education costs, office furniture, appliances, computers, and the likes fall under business

expenses from taxable income. Take note that many of us tend to overlook many expenses that

could fall under standard or itemized deductions. Bookkeepers know of work related and

miscellaneous expenses that should be deducted from the gross income.

As an entrepreneur you should take the advantages of deductible expenses as part of your goal

to minimize costs. Business tax deductions, federal and state taxes, payroll taxes— all of these

might get confusing. Yet, with the right accounting team you are on track in terms of keep up

with government regulations on tax payments.

 

3. Poor bookkeeping equals no bank financing.

Let’s say your business is doing well. You’ve done all the hard work needed to ensure profits

come steadily in a consistent manner. You are ready for expansion and in order to raise

additional capital, a bank loan is the answer. Balance sheets, profit and loss statements, cash

flows—these financial statements are extremely necessary to be approved for bank financing in

expanding the business. Without accurate and timely records, your business plan expansion’s

projected income (which is also required for loan applications) won’t have proper backing.

On top of those financial statements, documents such as your resume, personal and business

credit reports, income tax returns, bank statements, and other legal documents all take part in

your business loan checklist. All documentations must be solid enough for you to get approved.

The approval that you need is only possible when you have proper accounting and bookkeeping

systems.

Having mentioned these three facts on why proper bookkeeping is extremely important, we arrive at a

conclusion that small business owners need all the professional help they need to ensure proper

accounting of their daily operations. According to an article in Forbes magazine 9 out 10 business start-

ups will fail, and of those that didn’t, they ignore nothing in their business, and cash management is one

of them. Failing to work with an accountant will only lead to higher incurred costs than the actual fees of

hiring one.

 

East Coast Tax and Financial Planning developed a monthly program that covers all the key aspects

required from a successful outsourced accounting process for your business. Our low monthly flat rate

doesn’t compromise your need for an attractive easy to read and understand financial statements. We’d

love to hear from you. Provide us with your details here.