The Importance Of Having An Organized Financial Record

by Aug 20, 2021Outsourced Accounting0 comments

The financial aspect is one of the cornerstones of a business. Whether your business is small or big as a corporation, accounting and bookkeeping are relevant to start and progress your company. As a business owner, you cannot have financial statements without your financial records.

It is essential that you record all your business transactions, from daily purchases to monthly bills to equipment acquisition. It will be beneficial for you and the company to make this a habit, not only in keeping and storing the receipts but in systematically organizing them. This way, your records can help you in making precise decisions for your business.

Financial records are documents that serve as evidence of any transactions done by the company. These include receipts, invoices, ledgers, and trial balances. At the higher level, financial records may cover balance sheets, income statements, and statements of cash flow.

Proper bookkeeping may require you to hire someone to manage your financial statements and make reports for the demands. Or you have a better option of outsourcing these kinds of services like bookkeeping and accounting to your trusted financial outsourcing company.

Of all the importance of having good accounting records, the main point is it makes your business productive and efficient. It boosts sales, employee retention, and risk management. Six of the specific advantages are listed below.

Tax Saving

Keeping a record of your income and expenses helps you remind yourself of your expenses instead of listing them down according to what you remember. Business expenses may be plenty, and by the time you have to file your taxes, chances are you pay more of your taxable amounts. Get your taxes reduced when you look after your expenses and find deductible costs.

In preparing your tax returns, you will need physical evidence, particularly receipts and ledgers. These documents will be your supporting accounts for the income, credits, and expenses written on your report. The compilation of your records is rather mandatory and required to file solid tax returns.

Having organized, clean accounting records also means you are complying with the law working in legal means. Likewise, these are the records you will use to prepare your financial statements, balance sheets, and income statements, for your strategic management. When you keep these documents at hand, you only need to maintain them up-to-date and in order.

Acts As A Backup In Time Of Audit

The Importance Of Having An Organized Financial Record
Company auditors may need all your receipts that dictate the cash in and cash out in the past fiscal year. If these are not available, the auditors will rely on their sound judgment of what the values are in income and expenses.

If you outsource your auditor and you don’t have all the necessary documents, the auditor will work for you longer. As a business owner, this means additional costs for you since more work is added upon the outsourced worker. Your financial records are not accurate, therefore, you cannot use the data in forecasting and decision-making.

If the government chose your business for audit and investigation, they would require you to present your business records and physical evidence on the items reported on the tax returns. If you don’t organize your financial records, the examination will be time-consuming as you have to list down and track all your business transactions.

Having documents and a complete set of records can speed up the process of getting the job done quickly, making you get back to business sooner and focus on the vital things that would help your company grow.

Monitor The Business’s Progress

One can only see the status of a business through its financial records. You cannot easily say that a business is growing if many customers avail their products or services. A business has to spend and withdraw as well.

So, to properly determine if the company is gaining profit, prepare the cash flow and income statement. Keep in mind that these documents will require you to accurately note the amount you receive in every transaction and all your expenses at any amount. Failure to do this will make your financial statements inaccurate, containing loopholes.

There is a possibility that even if a business has abundant sales, they are only at their break-even. Therefore, you need a carefully managed record to monitor your progress. It also shows where most of your profit comes from, what you need to improve, and possible expansion.

Through your financial records, you can foresee the track where your business is going. Plus, you can detect any trend that is happening and perceive the season your business is experiencing, making the necessary moves to get back on track.

Identify Income Source

Identify Income Source
A business may have many sources of income, especially when it is growing and aiming to be a corporation. People and organizations will give you money or property that will be your business’s asset. Remember that there are taxable and non-taxable incomes. Whether or not you wrote them on your tax returns, the government would automatically cancel them out. But for your precise computation, it would be better to keep that in mind.

To successfully manage your business and separate it from your personal affairs, make a different record of your company’s income source. This is particularly challenging for small business owners since the usual process is they use their income to maintain and provide for the business.

If you don’t keep your income records today, you may want to start now. Besides, knowing where you get most of your income can be your guide to where you want to concentrate on your business. If most of your income derives from investors, you can decide to get and convince more, but if you get most of your income on your sales, you may also want to focus on marketing or try to improve other sources of income, like investments.

Avoid Interest And Penalties

Keep track of your records, and you will see all the monthly and annual shares you have to pay to the government and other organizations. Penalties will always be there. And to avoid this additional cost that you might incur, prepare your bills, and note your daily, monthly, and yearly expenses.

By this, you will know when is the usual time you have a high cost or whenever you pay those liabilities. Even for instances that a sudden liability is presented to you, if you have compiled your records, it will be easy to get the process done and avoid delays in making your payments. It aids in paying the right amount of taxes on time.

Know Your Business’s Financial Status

Know Your Business's Financial Status

One of the main reasons a person invests in a business is to grow his or her money. A person plants a seed to harvest many. And in the process of planting, you want to know the current status of the investment; is it flourishing, stagnant, or withering?

You will obtain your answer from the financial statements prepared by an accountant or bookkeeper. If you see your investment withering, you can immediately take preventive actions and stop the downward trend that might lead to a complete investment loss. For stagnant investment, you can examine the accounting records and financial statements to see what is lacking and find out the reason nothing is happening to your business’s finances.

On the other hand, if your investment is growing, you may want to monitor its growth or probably consider ways to make it grow faster. Through your records, a plan will emerge that will help you through achieving your financial goals.

If you wish to keep your records organized, a finance officer, accountant, or bookkeeper can bring a great contribution to your company. Consider a financial outsourcing company like Savvy Financials in providing you complete accounting and financial services where they will work with your financial records and hand over a report monthly or whenever needed.

Browse through Savvy Financials’ website now, and learn more about the services we offer. A few of those are accounting, bookkeeping, budgeting, and taxation. Don’t hesitate to give us a call and contact us at any time of the day. We look forward to working with you and seeing you fulfill your financial goals.