When you first started your small business, you probably had a little bit of working capital, a good idea, and the drive to combine those two things to make that business work for you. You weren’t worried about things like inventory control, project management, or even accounting.
As time went on, however, it became more and more apparent that you couldn’t treat your small business finances the way you might treat your personal finances. You realized you needed more than just a checkbook register and some shoeboxes full of receipts.
Here are some of the serious problems that can occur if you don’t have effective accounting built into your business…
Unorganized Accounting Records Can Be a Tax Nightmare
Whether it’s you or your accountant doing your taxes, you’re creating extra work at the end of the year. That means lost time for you, or lost money that you have to pay your accountant to find every relevant piece of paper and make sure it gets put into the right category.
More importantly, if you get audited then those shoeboxes are going to create even more headaches. The last thing you want to do is sit at your kitchen table rifling through those shoeboxes while a watchful auditor sit back with a bright red pen in hand.
You Won’t Know the Health of Your Business Without Accounting
There’s an even more important reason why you need to use accounting software to manage your small business finances. A simple ledger and those shoeboxes don’t give you the full picture when it comes to your business. You need to be able to analyze the financial data surrounding your business in order to gauge its health
Accounting software will tell you if you’re making money, but it also tells you which kinds of products or services are most profitable. It gives you important data about things like overhead, average order size, customer retention, and more. The right accounting package is like a steroid shot for your business, allowing you to focus on what works and shore up those areas that don’t.
Even “Simple” Service Businesses Need Accounting
If you have a service-based small business that doesn’t handle much in the way of inventory or supplies, it might seem like accounting software is overkill. The fact is, however, that you stand to gain significantly as well. Categorizing expenses, tracking travel costs, and even handling complex tax situations related to having a home office can make your business run more efficiently, giving you time to focus on what you do best: running the business.
Don’t fall for the shoebox trap. Invest in good accounting software for your business. Give your small business the tools it needs to succeed while making your accountant (and the IRS) happy at the same time.
