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Why Is It Important for Small Business Owners to Keep Good Financial Records

Good accounting not only ensures that you meet your tax obligations, but can also give a clearer picture of your company`s financial well-being and even help you earn and save more money. That`s because proper accounting can help you avoid potential penalties, fees, and unnecessary costs, find ways to save money, and make better decisions about running your business. In the end, good drives make your life easier and help you save money! To be competitive in the business world, you need to prepare for all future events and market changes. This preparation is done through careful cash flow planning. The inability to properly plan cash flow is one of the leading causes of small business failure. Cash flow analysis should show whether your day-to-day operations are generating enough cash to meet your obligations and how your main cash outflows to settle your obligations relate to large cash inflows from sales. Your business should always be ready to be inspected by the tax authorities. You need to have proof of every point you include on your tax return, which means you need to keep good records of your income, expenses, and credits. With this proof, every audit is quick and stress-free. But if you don`t have it, you`ll have to spend time (and maybe even money) trying to find the relevant receipts and documents. And if you can`t find them, you could end up paying penalties or more taxes. Luckily, you just need to keep good records to avoid this costly nightmare! Accounts receivable journal: A customer journal lists money that other people or businesses owe a business for goods or services the company has provided.

This journal contains a list of customers who owe you money, how much they owe and when payment is due. You can also include a list of customers who should not receive credit due to past defaults. For each record, specify the date, customer name, amount, collection date, and status. Good record-keeping practices are essential as they help companies comply with different laws in different countries. Businesses should establish good accounting and expense management systems to promote good record-keeping practices and facilitate the retrieval or filing of records. If you are a startup or SME owner and have tips and advice on how businesses can keep good records, let us know and we will update the article accordingly. Let`s grow and build a holistic business ecosystem together. No matter what`s going on in your business, organizing your financial records is essential. When it comes to creating a budget, applying for loans or grants, or seeing if you`re making a profit, accounting can help you quickly find the information you need. Both approaches have their advantages and disadvantages. One of the advantages of manual accounting is the independence of the machines. Disadvantages include: reduced speed, increased effort for accountants, relatively slower internal control reports, and duplication of work.

The main advantages of computerized accounting include accessibility, collaboration, speed and flexibility of reports, reliability, absence of routine work, increased accuracy, an internal control system with increased productivity, easy backup and retrieval of records. Disadvantages include dependence on machines. One of the biggest threats to the survival of small businesses is poor cash flow management. In fact, a study by CB Insights found that 30% of small businesses fail because they lack money. If someone asked you about the difference between accounting and accounting, you would. Our property management platform, Sugu, allows you to upload leases and other files for entire properties/units (so everything stays in one place), track contractors (and the service requests they complete), and generate reports (so you can see exactly where your business stands). Accounts payable journal: A vendor journal lists the money a company owes to other people or businesses. Indicate the amount owing, to whom, the date the payment is due and the date you paid it. Maintaining a strong accounts payable record saves you from being charged for the same product or service more than once. It`s also helpful to keep track of discounts offered for prepayments so you don`t forget to take advantage of it.

And as annoying as it may be to miss a payment to a supplier, it`s much more expensive to let your own bills slip through the cracks. Proper accounting ensures that you send invoices to the right customers at the right time, and also helps you manage and track your own receivables to ensure you are always compensated for your work. Keeping business records can be intimidating at first. The key is to break things down into a series of simple and manageable tasks. Then you can access them regularly and update them instead of letting the paperwork pile up. Contracts: Whether you enter into a supply contract with a supplier, rent a new piece of equipment, or purchase commercial insurance, you should keep a copy of the contract for your records. Keeping a copy of contracts can also help you avoid disagreements in the future. If you don`t have accounting records, investors can`t determine the success or failure of your business. You need up-to-date and accurate information. And this information must be easily accessible.

If you don`t use accounting, the data may not be available when you need it. There`s a lot to manage if you`re a business owner – employees and contractors to pay, unpaid payments from customers or residents you need to track, and shareholders or partners who need a share of your profits. And there`s no way to track everything unless you have good records (like invoices, invoices, receipts, and timesheets). You must have your business records available for inspection by the IRS at all times. When the IRS reviews one of your tax returns, you may be asked to explain what you are reporting. A comprehensive set of files speeds up the investigation. Records can help justify and explain why management made certain decisions. Cash flow problems are also one of the leading causes of business failure, and consolidating records will allow companies to make better decisions. With the survival of your business at stake, the possibility of loopholes and surveillance by business owners cannot be ignored, and precautions must be taken. Good accounting can help improve employee well-being and morale, and not just in accounting. Without accurate books, you run the risk of paying employees late or the wrong amount, which can cause a whole host of headaches for both parties. Every business must keep records for as long as required by law.

This is important because HMRC may ask you to review previous files if there are any issues with your tax. The minimum period for which you must keep records is six years for VAT or five years from the last date you file your tax return. By reviewing your records and creating reports, numbers, and statistics, you can see how far your business is going. This means you`ll be better able to identify areas you need to improve, as well as areas that are doing well. And it finally gives you the information you need to help your business grow! Every day you wait before sending an invoice to a customer is a day when you`re likely to have to leave without payment. Even if you can afford to wait a few days for a few payments, too many delays can add up to a real cash flow crisis. Making sure you`re properly compensated in a timely manner is one of the best things you can do to prevent a cash flow crisis from threatening an otherwise successful and profitable business. We use the term accountant, but depending on the size of your business, you may need to consider an accountant to oversee the financial aspects of your business. This person can also be helpful in developing strategies to protect your income.

Plans such as simple IRAs, flexible spending accounts can be helpful in reducing your tax liability and increasing your personal wealth. Your system of record, whether paper or computer, must be easy to use, easy to understand, reliable, accurate, consistent and designed to provide timely information. To stay compliant and avoid legal issues, it may be important to keep copies of some documents, even if they are not useful for day-to-day operations. For example, you may want to keep copies of all your contracts for up to seven years, but you should probably keep auditors` reports, financial statements and pension plan records indefinitely. If you update your books only a few times a year, you may miss important information that can help you become a better leader. Without accurate accounting, you are often forced to be reactive, as you only become aware of problems when they become too obvious to overlook. Disorganized books not only make it harder to identify financial problems, but also harder to solve. If you have a high volume of customer invoices and/or vendor payments, consider hiring a clerk to process customer invoices, collect receivables, and pay invoices. The accountant can come monthly or quarterly to make sure everything is handled properly. You need good records to prepare your tax returns. These records must justify the income, expenses, and credits you are reporting.

Typically, these are the same documents you use to monitor your business and prepare your financial report. After you use your accounting to file your taxes, the IRS can conduct an audit. In this case, you will need accurate accounting records. The IRS may ask you to see your records, and organized accounting will save you time during the audit process.