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Why your business needs an accounting system
What the law says, how you can stay compliant, and my recommendations for business bookkeeping.
I’ve worked with hundreds of new small business owners, and their number one issue is knowing their numbers. By that, I mean knowing how much revenue they bring in, how much profit they make, and an estimate of how much tax they owe.
Every business owner needs to know these crucial numbers. Yes, you have to know them to prepare and file your tax returns each year. But, you also need to know your profitability and cash flow throughout the year, especially if you depend on income from your business to support your personal finances.
And, you’re legally required to keep books and records of your financial activity for tax purposes. Section 6001 of the Internal Revenue Code (the “Tax Code”) says that anyone who has to pay tax—which probably includes you if you’re reading this—has to keep records and documents as required by the IRS. It also says you have to be able to show those records to IRS officials when requested.
That doesn’t necessarily mean you need to have professional bookkeeping software and a full-time accountant for your business. But, it does mean you should have a systematic way of documenting and organizing your business records.
Spreadsheets and a computer folder containing well-labeled images of receipts and invoices are just fine for a lot of early-stage businesses. Though soon, you’ll want to upgrade to accounting software. I recommend QuickBooks Online, but you can also use Xero, FreshBooks, or Wave.
And if you need help from a bookkeeper, you should absolutely get it! My accounting firm, JWellsCFO, offers bookkeeping, payroll, and fractional CFO services for small businesses.