As a small business owner, there may be times you may want to skip keeping official financial records and making financial statements.
A lot of times in a startup, you may be doing all the work, from customer service to marketing to delivering the product or service.
You might not have the time for another task such as keeping accounting records.
You might think it’s too complicated to learn. You might not have a lot of funds and would rather use the money on other important items that directly impact your bottom line.
However, one of the most vital thing for a business is proper, accurate, and thorough accounting.
And here are 3 reasons why:
1. You need the records for tax purpose. Without proper accounting records, you may end up paying more on taxes if you don’t take advantage of available tax deductions. You may also get fined for not paying required taxes on time.
2. To analyze business operations and processes and make judgements and improvements. What gets measured gets improved.
3. For potential investors and creditors. If you hope to get external funding, you not only need current and actual financial records and reports but also projected reports that outline planned growth and profitablity based on forecasts. This is true even if your business is just an idea or just starting and doesn’t have much sales record. With the right forecasts based on research and evidence, you can get investors interested in your business.
The more detailed and thorough you can be, the more successful you will be in convincing potential financiers.
Note: while just financial statements are not enough to get investors – you need a promising product / service and convincing results – however, without the financial reports, analysis, and forecasts, you won’t attract the attention of the right investors even if you do have a great business.