Whether you’re a freelancer who left a full-time job, someone who accidentally started a business, or the owner of a bustling company, you’re probably no stranger to the requirements of bookkeeping. However, the independence of running your own business also means you carry the responsibility of managing and monitoring your business’ finances. While that freedom may give you license to bow out of components of business management you don’t feel necessary, bookkeeping isn’t one of them.
Bookkeeping remains essential for self-employed individuals. Here’s why.
You Can’t Do Much Without a Clear, Organized Picture of Your Finances
Whether it’s how much of an owner draw to take, applying for state-sponsored health insurance, or gathering expenses during tax season, without an accurate picture of your finances, all of the choices you make that impact your business’ financial health can be devastating. You absolutely must record and categorize your income and expenses, track and manage invoices in accounts payable and accounts receivable, and have accurate information and reports across the board.
Beyond the crucial stuff listed above, if you want to analyze how your business is doing, interrogate why you haven’t seen more growth, or want to start advertising, you can’t do any of that without accurate numbers.
Tax Compliance Is No Joke
Bookkeeping is important for tax compliance, not just because you want to follow tax code and avoid penalties and fees, but also because your CPA needs reliable data to file accurately. Keeping up with your books throughout the year makes for a much less stressful tax season, and if the documents you hand your accountant are accurate, they can focus their energy on maximizing deductions and tax planning for the coming year rather than organizing mixed up, all over the place data.
You Can’t Engage in Financial Planning and Budgeting
While you can speculate about what you might spend or make in the future, you can’t really build a budget or financial plan without knowing the current financial health of your company (i.e. average sale, top products, service labor costs vs. pricing). With appropriate bookkeeping, you can generate reports and identify trends, use historical data to set realistic goals for the future, and use your data to set financial goals and allocate resources effectively. Even better, you can establish financial benchmarks and performance indicators that indicate your plan is working.
Building Trust With New Hires and Clients
A disorganized company is one of the most unattractive things to potential hires. Employees and contractors want to work with someone they know is on top of it, pays on time, and understands how their investments and cashflow is being put to work. Knowing your financial data builds confidence and trust with everyone you work with.
While being self-employed means flexibility and control over your own working style, bookkeeping isn’t something you should bargain on. Clarity, compliance, and an informed approach to running your business can ensure you stay self-employed for as long as you like. While you may not want to dedicate time and effort to bookkeeping (many self-employed individuals don’t enjoy it and find it time consuming and distracting), know you have options. CPA firms, including ours, offer outsourced bookkeeping services utilizing client portals that make transferring documents simple. We also provide monthly, quarterly, and yearly reports we are happy to walk our clients through, so that you know exactly how your business is performing.
