Why Should I Track My Business Transactions?
As a business owner, you realize how many different factors there are to running a business. Aside from actually providing the service or product you sell, you know, the reason you started your business? You still have to deal with administrative and financial tasks as well. You may even be wondering why tracking your business transactions is necessary. Especially as a new or small business owner, maybe you think there isn’t much to track. However, transactions can add up quickly, and if you don’t have a good bookkeeper or at least a good bookkeeping system set up, you will fall behind, and it will lead to stress and potential chaos during tax season. It’s important to note that ‘business transactions’ is a broad term that includes more than just business expenses; it includes any financial ‘exchange’ that occurs within a business, like service or product sales, paying bills, payroll, and more.
Although the general goal behind tracking your business transactions is to avoid financial stress and chaos, what does this really mean? Well, for starters, it means you’re keeping track of everything that goes on with your business, especially the money movement. After all, the whole reason behind starting your business is to make a living for yourself. If you’re not sure of where money is coming in and going out of your business, how can you ensure you can continue making a living from this business? It also means you understand how financially healthy your business is. That is, where you are most profitable, if at all, and any hidden expenses or business failures. Seeing and understanding how your business performs can help you make more informed decisions and better plan for the future.
So, yes, having financial clarity is the main reason for tracking your business transactions. But there’s more! Understanding the financial health of your business is only one part of running a successful business. You also need to be preparing and planning for the future. This means reviewing your past performance. What has worked, and what hasn’t? Do you need to lower your prices, or are you so overflooded with inquiries that maybe indicate you need to raise your prices? Are there any areas in which you need to budget or save to buy better equipment, supplies, or even property? Are you needing more help, but don’t know if you can hire another person? These questions cannot be answered if you don’t have the basic financial data; where are you earning your money, and where are you spending it?
Aside from having financial clarity and the ability to make informed decisions for the future, tracking business transactions is important to mitigate internal risk. If you own and operate a larger company and have multiple employees, there is always the unfortunate possibility of internal fraud and theft. Tracking your business transactions can minimize the possibility of internal fraud and theft, also known as risk management.
Tax compliance is the last, and arguably the most important reason for tracking your business transactions. Not only can you simplify the year-end tax filing process, but you can also identify areas in your financials to claim deductions, pay accurate quarterly taxes, and ensure proper documentation for each transaction, in the case of an IRS audit.
That was a lot of information. Let’s review. Tracking your business transactions is important, and it’s about more than just being organized; it’s also about:
Financial Clarity.
Informed Decision Making & Future Financial Planning.
Risk Management.
Tax & Regulation Compliance.
We know that was a lot of information, and we also know that it can be confusing or overwhelming at times. Let us take care of your financials, and you take care of your business. If you’re interested in hiring a bookkeeper, reach out to us today to schedule a meeting for a free quote on services.