Importance of a Good Financial Recordkeeping System

Micro-business owners wear many hats.  But for many, the "bookkeeping hat" is one that is not always a good fit. Many of them lack the interest, time, or knowledge to maintain their books properly, but they still resist hiring a bookkeeper --- claiming "they can't afford it".

I often respond, "Can you afford an audit, pay unnecessary penalties and interest, or go to jail"?  I know that might seem to be an overly-dramatic statement.  But I have approached potential clients who have said that they kept their books in their "heads".  I've come to realize that meant their idea of record keeping was to throw their receipts in a box, if they kept any, and called it a day.  And at tax time, they roughly estimated their income and expenses --- often based on the figures they used the previous year.  No matter how many times I have heard a similar version of this bookkeeping practice, I literally cringe.


Of course I try to convince them of the benefits of outsourcing their bookkeeping tasks to me.  But it is only after I explain the importance of maintaining a good record keeping system that I have been able to  successfully convert this type of prospect to a client .

Why is there such a great emphasis on a good financial record-keeping system?

• It allows you to monitor the success or failure of your business.


• It allows you to make informed planning decisions based on sound financial data.


• It allows you to generate reports to obtain bank financing or other sources of capital.


• It allows you to present organized financial data to your tax return preparer to ensure an accurate income tax return.


• It allows you to compute other federal, state & local tax liabilities such as payroll taxes, sales tax, etc.


• It is required by law.