Why is regular Bookkeeping important for businesses?
Every successful business is built with a solid foundation. A key component of that foundation is regular bookkeeping. Regular bookkeeping can not only keep you out of trouble with the Inland Revenue Department, but it can also help you grow your business through effective cash flow management and accounting policies.
What is Bookkeeping?
Bookkeeping is the process of maintaining financial records of a business. Every business has some type of bookkeeping that they will perform on a monthly or even daily basis. Tasks like payroll, bank reconciliations and invoicing are some of the most common bookkeeping tasks. These tasks need to be performed regularly in order to stay up to date with information. A lack of timely bookkeeping can lead to errors, lost items and even fraud. Monthly controls surrounding bookkeeping can help keep your business running smoothly.
Benefit #1: Saves You Time and Money
Regular bookkeeping has many benefits to you and your business. Staying on top of bookkeeping can save you time at the end of the year when it is time to file your business or personal return. You won’t have to spend countless hours searching for receipts and transactions, instead the year should be fairly complete. Moreover, regular bookkeeping can help you avoid late filing penalties which can range from $50 to $500. The Inland Revenue Department can be very strict on imposing late filing penalties, all of which can be avoided with the assistance of monthly bookkeeping.
Benefit #2: Accurate Financial Data
Just like regular bookkeeping can save you money, it can also help ensure that you have accurate financial data. Transactions are more likely to be entered correctly when they are done shortly after receiving the information. If you wait until the end of the year to reconcile your accounts and enter information, you heighten your risk of incorrect data. This can be detrimental to your business since taxes are calculated based upon the financial data from your accounting software. Duplicate entries can cost you more money in taxes, especially on the GST tax. Avoid future amendments and correspondence with the Inland Revenue Department by ensuring your data is accurate when you enter it.
Benefit #3: Promotes Business Growth
Accurate financial data leads to business growth. Regular bookkeeping helps you maintain accurate records which can be used for business planning and projections. Business planning is essential for steady growth. Planning future labor needs, supply orders and capital needed are all factors that come with business growth. Regular bookkeeping can help you reach these goals by giving you a clear picture of your business’s financial health. You don’t want to be scrambling for money or to find a labor force because your books weren’t reconciled. Effective cash flow management stems from transparency in the accounting records. Without regular bookkeeping, you won’t be able to fully understand where your business stands.
Benefit #4: Avoid Letters from the Inland Revenue Department
Another reason why your business needs regular bookkeeping is to effectively handle the Inland Revenue Department. As mentioned before, the Inland Revenue Department can be very strict when imposing penalties. Sometimes the Inland Revenue Department can be wrong about the fines and penalties they impose, making sound bookkeeping necessary to prove you don’t owe any penalties. Moreover, you can potentially request penalty abatement if you have sufficient evidence to support your viewpoint. The Inland Revenue Department often times gives you a short amount of time to respond to the letter and pay any fines or penalties. If you are behind on your bookkeeping, you may miss the deadline to respond for penalty abatement, highlighting the important of staying consistent with monthly bookkeeping tasks.
Benefit #5: You Learn the Whole Business Process
Learning how to bookkeep for your business can come with a learning curve. Accounting is hard, especially when you have New Zealand tax laws to follow. Learning the entire business process, from invoicing to providing the good or service, is critical for you to grow your business. How do you expect to pass the task off to someone else if you don’t understand how to complete it yourself? Take the time to learn the laws and regulations surrounding monthly bookkeeping. It will pay off in the long run.
Bookkeeping is a critical component of every business, from a one-man company to a company with a hundred employees. Don’t be stuck warding off the Inland Revenue Department because of racked up fines and penalties from late filing and inaccurate records. The few hours a week or month spent doing bookkeeping tasks will reap significant results in the end.