Many people don’t quite understand why they need a bookkeeper. I am going to share 3 short powerful reasons why you need a bookkeeper. A bookkeeper will keep track of your income and expenses. This is very important. It allows you to create financial reports that are needed and sometimes required for lending purposes, such as line of credits or investor opportunities. Many people underestimate the story your numbers tell about your business. You want to show a high cash flow and a low liability. The only way to control that is to have a bookkeeper/accountant that can help you produce financial reports that you can use to manage your business. Which brings me to tip #1. You need a bookkeeper to:
1.) Grow your business
In order to grow your business you have to track your numbers. That’s exactly what a bookkeeper does. You may spend and collect the money but you have to turn over all those activities to a bookkeeper so they can properly record the information. This will in return help you manage your business. When an owner can properly manage their business they can control their cash flow. When an owner can control their cash flow they will see their business grow. This is due to having the ability to pin point problem areas or growth opportunities.
2.) Keep track of payments owed
When you have a bookkeeper, they will classify your transactions and separate things that are owed. For example, if you have bills you have not yet paid, your bookkeeper will be able to pull a report showing the vendors your owe. If you allow customers to pay at a later date, your bookkeeper can keep track of who owe you and how far past due they are. You have the luxury of writing off anything that was not paid. You do not have to take it as a loss. If you do not have it on record though, you may not know what to write off. A bookkeeper can also show how much you owe the state in sales tax. Many of us are selling products that require us to collect sales tax. One, I hope you are collecting sales tax or at least considering sales tax in your pricing. Two, I hope you are paying it to your state. Sales tax in my city and state combined is 10%. I sell my book Financial Finesse and I am required to collect a 10% tax for my product. This is not my money. So not only do I have to plan for the tax I also have to make sure I don’t spend it. Your bookkeeper can keep track of how much tax you collected, which will tell you how much you owe.
3.) Reduce tax liability
Now I know we all like the idea of making money. It may even seem that the income that comes in is all yours. The truth is it is not. For every $1,000 you profit, you should at least (at minimum) put aside $100 of that for taxes to the IRS. An easy way to do that is to transfer the money over into another account. When it is time to submit your estimated tax payment for the month or quarter you have something saved to pay. This will reduce your tax liability to the IRS. When you were an employee you didn’t have to think about this because you filled out a W4 telling your employer how much money you wanted them to take out of your check each pay period. Many people never even change their W4 unless something change in their life, like getting married or having kids. So they never have to worry about this again until tax time. When you are a business owner you have the responsibility of thinking of this every day and every dollar you make ( unless you are setup as an Scorp). You will be in bad shape if you profit $100,000 this year in 2018 and never paid the IRS a dime. You will owe them $15,300 in business taxes. If you paid at least 10% you would only owe $5,300 at tax time. Which will decrease your burden. It is a lot better to pay the IRS as you go to avoid penalties, interest and unnecessary burdens. Especially when your business is at the point where it spends must of what comes in. Best practice is to just pay your self employment tax as you go and it is a 15.3% Tax.
Hopefully these 3 reasons have not only educated you but also inspired you to treat your business like a business and hire a bookkeeper.