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Why Is Bookkeeping Important In 2021?

Starting a business can be a busy time for any entrepreneur and to some, worrying about bookkeeping can seem like an unnecessary task. But, as intimidating as it may be to have a bookkeeper, there are many benefits to online bookkeeping and a strong accounting platform; and several problems can arise when a business does not keep their bookkeeping up to date.

Here we’re going to talk a bit about what is to come for all businesses that don’t have bookkeepers, including the big price that they might need to pay as this unique tax season continues and with an eye to next year’s tax filing season. 

In the Dark on your finances

All companies need to be able to see a full and clear picture of their business through bookkeeping. This means keeping a record of the ins and outs of the business transactions which helps to make decisions and see where businesses can improve - potentially to make more money and lose less. Without bookkeeping, businesses are left in the dark about their finances and it is almost impossible to make appropriate decisions for the future. Decisions such as tracking cash flow, making projections, and following product statements are made much more difficult without proper records kept through bookkeeping - as well as related decisions: whether to hire new employees, invest in new equipment, or seek additional capital. 

The incorrect measurement of these statements and cash flows can self-inflict future issues in your company; issues like mishandling invoices and inventory, or recurring unnecessary expenses like hourly wages and shipping costs. Tracking these expenses and being able to differentiate them as fixed or variable costs can help you understand the break-even point in your business. 

A cash flow statement shows where money is coming in and what bills need to be paid to send money out. If you do not track this money and the supporting paper trails, you could be in trouble financially and not know why. This trail is only found through bookkeeping and the careful record of what’s coming in and what needs to go out.  This trail also can be automated with a strong online bookkeeping platform.

Easier Help Through Careful Records

As a start-up or an existing small business, sometimes money may be tight. Having your bookkeeping affairs in order will help to secure your finances. Not having current books will limit your options and ability to find financial help. It’s nearly impossible to ask for a loan from a bank or establishment without any financial records on file.

Think of it this way, would you want to invest in a company that doesn’t even know what their revenue was for the last six months? Or their expenses for that matter?

Without any bookkeeping or evidence of financial history, tasks such as getting loans, finding investors, and eventually selling your business will be nearly impossible.

Throwing Away Your Money

Without properly organizing your paperwork, you could possibly be losing some of your hard-earned money. To keep your money in your own hand here are some skills needed to maintain your books.

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Invoicing 

Keeping notes on all money transfers is key, and knowing who owes what is an important part of owning a business. Being able to organize yourself in a way to know what is due and when will help you keep track of your money. This will, in turn, help you know what is due so that you are paid in full for all services rendered. The longer it takes to get this organized, the longer your business may go without funds.

Payroll Problems

Like all things in life, good businesses need checks and balances in place to prevent unwanted issues. For things to run smoothly, payroll needs to be up-to-date, and the staff must be paid on time. Tracking all the variables—like expenses, benefits, and time off—can be a mess if left unorganized.

Without correct bookkeeping, overpaying and under-compensation for employees will be a daily disaster. This will, in turn, cause issues in the taxes for both you and your employee.

Manage Expenses

Having a drawer full of receipts might sound like a good idea, but will result in a big headache for any business owner. Proper bookkeeping can save your wallet from having holes in your business. Not correctly logging your expenses can lead to unclaimed tax deductions or an overstatement of expenses on your tax reports to the IRS⁠—which can become a big issue if the business is audited. 

Wasting Your Time

Many wonder if tax preparation is even possible if bookkeeping is left undone. While it may be possible, it is likely an expensive and time-draining task. Tracking down every record over the past year in preparation for tax season can take hours or even days, which will take away from business and day-to-day operations. Catching up on a years’ worth of bookkeeping brings unwarranted stress and worry to anyone that delays keeping records.

Without a system in place to monitor your books, an accountant will need ample time to organize through the mess, and potentially charge a hefty fee along the way.

IRS 

Being on the radar by the IRS is not something to be proud of. Having poorly kept books may mean your tax return is not accurate and, if the IRS finds you’ve under-reported and underpaid your taxes,  you may have to pay heavy fees and heavy penalties. You really do want to minimize the attention of the IRS.

Red flags for the IRS:

  • Fail to report income that has been reported to you and the IRS (for example, on Forms W2 or 1099)
  • Suspiciously big deductions, like claiming all your personal car for company use
  • Wrongly classified personnel (treating workers as independent contractors when they are really employees)
  • Failing to issue information returns: W2s, 1099s, etc.

Image of computer and calculator and person at a desk

Start Bookkeeping on Any Budget

To avoid any damage to yourself or your business, stay on top of your books. Hire someone to worry about these details, so you can focus on growing your business. Starting your books will help relieve a lot of stress and it’s as easy as getting organized. KPMG Spark can help as a cost-efficient way to maintain your books, make more money, grow your business, and mitigate the attention of the IRS. Visit our website and explore our blog for more information on how we can help you grow your business! 

This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

KPMG SparkJune 29, 2021Posted In: Accounting Info

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KPMG Spark is an online accounting service that saves you time so you can focus on what’s most important for your business.

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