Bookkeeping is not as simple as balancing a checkbook – nor should it be. Try this simple exercise: grab your personal checkbook, if you still use one. Now open it up and tell me how much you made in March… I’ll wait.
Still, adding and searching? Are you adding your net income? What was your gross? How much did you pay in taxes? How much did you spend on utilities last month? How about just on gas?
The list goes on; I think you get the point. Yes, the list of transactions (your checkbook) needs to happen – yet there is so much data that you need to know about the finances of your business that a simple checkbook or account reconciliation doesn’t quite cut it.
So, here are the five reasons why you shouldn’t run your business finances out of a checkbook:
- Tracking Expenses by Vendor
There will be times when your records and your vendors’ records don’t match. When this happens, having bookkeeping software implemented to track these expenses will save you hours of research and argument. Also, this is a great way to tell how you are doing on your budget and where you might need to start cutting back.
- Tracking Income by Client
Like vendors, clients may not keep track of their payments to you as well as you should. They depend on you to know how much they owe, but when they disagree, they need to see the paperwork. Then again, so will the judge,
- Job Costing
When you agree to a job, you want to know that you are actually making money and not spending more to do the job than you are getting paid. Having a way to notate transactions to a job or client is invaluable in this process. Job costing will provide valuable data that will either make or break your business.
Clearly, your checkbook doesn’t have a place to notate inventory coming in or that going out. Without a way to track the most valuable asset a business has, you’ll never have a clear idea of what your business is worth, how much potential income you have, and what else you may need. Tracking inventory will help you determine many important decisions in your business.
Whether for your own decision-making, taxes, financing, or investing, being able to provide a Balance Sheet, Cash Flow Statement or Income Statement is crucial to the function of your business. Most software used in accounting and bookkeeping will provide many more useful reports and data that will keep you making the best decisions for your business.
Your business is a complex legal entity with its own bank accounts, finances, budget, and value; don’t do yourself or your business the disservice of treating the books like a checkbook!