You've launched a small tech startup that makes an app for digital widgets. Business seems to be going well, but you can't tell for sure because the office manager who also does the books is always running behind and you don't know where your cash flow stands.
Finally, when your CPA prepares your taxes and straightens out some bookkeeping errors (running up a big bill in the process), you get confirmation: Business for the first year ran 50% ahead of what you'd anticipated.
That tells you two things. First, you should hire another sales rep and ramp up production. Second, you'd better get your bookkeeping squared away, and fast.
A Valuable Asset to Your Business
A strong bookkeeping practice can help you keep pace with your business today and better prepare to grow your business tomorrow. Here's how:
By providing financial insight: The ability to pay your bills in a timely manner is one of the most basic requirements for running a successful business. In addition, by understanding your P&L statement and your cash flow statement, for example, you can make sure you know how to stay ahead of your long-term debt obligations.
By positioning the business to take advantage of opportunities as they arise: Simply put, you can use high-level bookkeeping services — including the use of software apps for monitoring your key performance indicators in real time —to keep up with the pace of modern business, in big ways and small.
Let's look at our hypothetical tech startup again. Suppose a top sales rep were available for hire at midyear. If the owner has a good understanding of their financial status, they’ll be able to make a quick decision about whether they can afford to hire the individual — and not lose the opportunity.
The same goes for getting a loan. Say the tech startup needed a cash infusion to ramp up its production facility. Even if the company were generating ample revenue, a lending institution would be reluctant to provide a loan if the company's books were a mess or its credit were suspect due to habitually late bill payments. A good bookkeeper would position the company to meet the lending criteria — and might even prevent the need for a loan at all.
Finally, if your hot new tech startup were doing well enough to catch the attention of an established competitor, you'd like to be in a position to sell the company. Sure, you might think you'd never do that. But if someone offered you a life-changing amount of money, wouldn't you want your books in good enough order that you could at least consider it?
By providing checks and balances that can prevent fraud: What's even more devastating for a small business than an overburdened, undertrained bookkeeper is one who knows your system well enough to embezzle from you. Fraud can stunt a company's growth by not only draining its cash flow, but also undermining employee morale and damaging its reputation among customers and vendors. A number of bookkeeping best practices, including setting up cloud accounting systems, can help prevent fraud.
By allowing you to keep your eyes on the road: Besides keeping tabs on where your finances are at any given moment, solid bookkeeping support enables you to forecast with reasonable certainty where your business will be in the coming weeks, months and years. That will help you plan for tomorrow, using scalable systems, even if you're not quite ready to grow the business today.
A Smart Way to Grow
You can use the financial insight you can gain from high-quality bookkeeping to prepare for business growth, take advantage of time-sensitive opportunities, plan for the future and realize other benefits.