As a business owner or a potential business owner there are a multitude of things to track. We need to make sure our products and services are up to our standards.
If we use social media or other marketing platforms, we need to make sure they are working properly. One thing that business owners like to procrastinate to the very last possible moment is keeping their books up to date.
Many people may wonder what the importance of keeping up to date books may be. There are many reasons, but first we must define what “keeping the books” means. A businesses’ books refers to their bookkeeping, a way of tracking their financial data. Any purchases made in and for your business are tracked. Any sales by the business are tracked. All your bills, invoices, and bank statements for your business need to be together in one location. Keeping the books is when the business is able to keep track of all their financial data. In the past business kept paper records, but today businesses have the option of keeping their books up to date with modern technology.
Every year businesses need to file their yearly income tax, which are due on April 30th. If businesses keep their books up to date, when the time comes to fill out the tax forms the accountants will have a much easier time. It will relieve the stress most people feel at this time of year. Everyone will feel more confident they are paying enough money to the CRA, and they are receiving the most tax benefits. CRA guidelines require that a business keep all financial records for six years.
Some businesses need to file monthly and quarterly returns for GST/HST, WSIB, and payroll taxes. Working on your books a few minutes every day to keep them up to date may eliminate time spent later. By keeping track of all expenses, employees payrolls, and income, more time is available for work on the actual business.
Once you have up to date books you can be confident that everything is accounted for accurately. This will help decrease the likelihood of an audit. If you are audited, you will be required to show all of your financial data. The purpose of an audit is to see how well internal controls are working at preventing fraud. If you are not tracking your purchases and sales on a regular basis there is the potential of money going missing.
Most banks and outside lenders will request current financial statements before granting a loan. They want to see how your business is doing, and that you have a capability of paying back the loan. If you have your books up to date, and you understand the strengths of your business, it will demonstrate confidence to the lenders that you are worth the investment.
The general health of your business is reflected in the accuracy of your books. Up to date books will help you be able to make better decisions for your employees and your business.
Are you paying your employees on time? If you keep your books up to date you are able to budget better and make sure your faithful employees are paid on time. Your employees are the front line and face of your business. When they are happy your business runs smoothly. If you pay on commission, how do you know you are paying the correct amount if your sales records are not up to date? As you keep track and document in your books daily, you and your employees are confident they are being paid fairly.
How long does it take to receive payments from your customers? Are you invoicing on the day of service? If you are not staying up to date on invoicing your customers, your customers will not pay you. The longer you wait to invoice and wait the more likely your business’s health will decrease. Are you giving your customers enough options to pay? If you only allow one or two options to receive payment you are less likely to get paid in a timely manner.
Are you receiving final notices from your vendors? Do you know how much you owe your suppliers right now? Do you know when it’s due? If you worry every time you receive a bill your business health may be failing. By keeping your books up to date you know if and when you will have enough to pay that bill. As you keep track of your vendor payments and how often you pay, you will begin to see a trend and know how to better run your company. There may come an opportunity in the future that another company will offer the same item or services of a greater value for a lesser price. As you keep track of your vendor payments you will be able to weigh the options in front of you.
Do you know how much actual cash if flowing through your business? Are you buying items for your business using credit? Are your customers saying they will pay you later? Income statements can give a false sense of security. It may look like you are making more money in your business, and yet you are not able to pay for products. A Cash Flow statement help business owners understand how cash is moving through the business. Cash is the life blood of your business. Just like the body, if this life blood is moving too slow or too fast it is not healthy. If your books are up to date you can generate a Cash Flow statement and see how your business is doing at any time.
Do you know the financial health of your business right now? If you prepare and look at your financial statement only once a year you are at a greater disadvantage managing your business. It is good to be able to view the year as a whole, but it is just as important to look at each individual month as they occur. As troubles and challenges arise in the business, you are able to confront when they happen, rather than when they become a bigger problem. As trends become more noticeable you are able to change your approach to your business and ensure it thrives.
Lastly business owners need to keep their personal finances separate from their business finances.