Gateway Commercial Finance

Why is Important to Keep Financial Records?

Important Reasons For Keeping Records

The one area of business that all enterprises have in common is accounting. No matter what your business is, you need to know your financial status regularly and meet your financial obligations to local, city, state, and federal taxing authorities. There are several reasons for keeping financial records and getting help from a bookkeeper:

Reason One: Knowing Your Financial Situation

You need to know where your company stands daily, weekly, monthly, quarterly, and annually. Are you making money? Is your client base increasing or decreasing? Do you have enough money in the bank to meet your obligations? Are you meeting the goals you set for your business? Without this knowledge, you have little or no control over your business. You need to know how much inventory you have on hand, how much you need to order when you need to order, the credit terms your suppliers offer, and the balance in your bank account to cover your payments for running your business, such as rent, utilities, office supplies, inventory, employees’ wages, and payroll taxes. Also, you will likely be non-compliant with local, state, and federal regulations without proper financial control.

Keeping your books up-to-date and accurate is the best remedy for your business’s financial health. It allows you to manage your business cash flow efficiently and obtain the best prices from suppliers and the best interest rates from your lenders. The first items your lenders will ask for are updated financial statements and recent tax returns.

Reason Two: Meeting Your Tax Obligations

You are responsible for meeting your monthly, quarterly and annual federal, state and city tax obligations. These obligations include payroll taxes—employee withholdings and company share for federal income tax, social security and Medicare—state and local sales taxes, local business taxes, and licenses and fees to do business in the jurisdiction your company is located.

Your company must file timely monthly, quarterly, and annual tax returns including federal, state, and city annual income tax returns, quarterly 941 and annual 940 returns, state, and city sales tax returns (these may be monthly or quarterly), quarterly state unemployment tax returns.

Why You Should Hire a Bookkeeper?

A bookkeeper can ease the burden of the above responsibilities so you can focus on building your business. This person has the knowledge and experience to help you understand the financial aspects of your business, knows what taxes are due, and knows the filing dates of returns.

If you have a high volume of customer billing and/or vendor payments, you may consider hiring a clerk to process customer invoicingcollect receivables, and pay bills. The bookkeeper may come in monthly or quarterly to ensure everything is handled correctly.

We use the term bookkeeper, but depending on the size of your business, you may need to consider an accountant to oversee its financial aspects. This person may also help devise strategies to protect your income. Plans such as Simple IRAs and Flexible Spending Accounts may help reduce your tax liability and increase your personal wealth.

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