Bookkeeping is the process of keeping accurate records of company spending and revenue. Some small business owners decide to do their own bookkeeping to save on costs while others prefer to hire a trained accountant. Aside from making filing corporate taxes easier, there are advantages to doing accurate bookkeeping that every business owner should understand.
A comprehensive bookkeeping system allows a business owner to analyze spending and revenue one item at a time. The data can be grouped by the week, month, quarter or year to be analyzed and compared to past years. This is one way that business owners can discover ways to cut back on company spending and improve profitability.
Companies require an accurate report of current spending and revenue to help compare actual results with projections in the annual budget. A bookkeeping system facilitates up-to-date company financial information that can be cross-checked with the budget to make sure that the company is not overspending. Bookkeeping also identifies instances of under-spending so the company may find new uses for the extra money to help productivity.
A bookkeeping system makes it easier to report revenue for tax filings at the end of the year, but a comprehensive spending profile can also help you find tax deductions that will lower your tax burden. If you do your own bookkeeping, you need to stay updated on tax laws and changes in the tax code that may allow you to take deductions to help offset the costs of doing business. Without a bookkeeping system, you would have no documentation to back up your deductions.
Bookkeeping services include checking the accuracy of each payroll period to make sure that each employee receives the proper amount — an especially important function in organizations that pay bonuses, sales commissions and supplemental payment based on a percentage of revenue. Confirming payroll numbers keeps employees satisfied with their pay and prevents the company from over- or underpaying payroll taxes as well.