A Profitable Company May Not Have Positive Cash Flows The Importance of Bookkeeping

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The Importance of Bookkeeping

Most people look at bookkeeping as a chore that must be done to get back some of the cash needed at the end of the year. From this perspective, it is not surprising that many businesses fail out of the gate. Actually, accurate bookkeeping and tax reporting (although important) are at the bottom of the list, not really fun.

Product cost is the most important aspect of business. Whether it’s pricing a “widget” or pricing the services you provide, if your pricing isn’t accurate, you can never stop building a profitable business. At first it seems simple, the fees are higher than the costs, right? Well, many factors can come into play: insurance, packaging, delivery, marketing, etc. All aspects of the business should be considered when considering how much it costs to deliver what you are selling.

Cash flow is probably the next biggest aspect of business. Many small businesses do not consider maintaining positive cash flow an important factor. Some go into business thinking that demand will just cover this factor, and coupled with ineffective pricing, they put themselves in the poor house during the first 24 months of operation. It’s sad to see, but it happens frequently in the business world. Proper small business bookkeeping could have allowed them to increase their profit margins and make their dreams come true.

If you’re going to take out a cash loan to get started, another big aspect of small business bookkeeping is getting to know your banker well. Develop a relationship and your banker can provide critical support if your business takes an unexpected downturn. A good banker will give you credit options and help your business with different payment plans until things change again.

Small business bookkeeping can be the backbone of your business. As much as it may seem like a chore to many, it will make or break your business. Keeping accurate records, especially the first few years, will put the wind in your business sails. Don’t take your small business bookkeeping lightly. Research these basic aspects and do some more research on them. Contact local and federal Small Business Administration agencies for more guidance.

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