By Philippos Hadjizacharias
It is rather unfortunate but 100% true: according to certain statistics, one in two new small businesses go bankrupt or close within their first five years of operation. Why? Well, the main reason for most of them is poor financial management. We don’t mean to scare you, but if you are a novice business owner, you have to acknowledge the significance of proper accounting services should you wish to remain open for long.
So, in case you are wondering whether your small business requires proper bookkeeping, as well as accounting and tax services, my immediate response is always and unquestionably “yes, it does.” Here’s why:
Because taxmen are kind of edgy
All businesses need to file tax returns and pay certain taxes. We just can’t avoid it. Accurate and proper filing requires precise and meticulous bookkeeping. Rough-and-ready scribbles in a notebook and on greasy, barely readable receipts just won’t do. Your business requires reports that unmistakably segregate your firm’s cash flow at specific tax time – something that is simply unfeasible without proper tax and accounting services.
Because you need to get paid
Without accurate bookkeeping, you will soon find yourself unable to recall who owes you money, and how much. Fundamental bookkeeping includes sending invoices and ensuring payments. Maybe back in the first months of your business bookkeeping may seem redundant, as debts and payments can be easily recalled. However, your memory will soon fail you. As your business develops and your collaborations increase, you will need a procedure that will properly organize payables and receivables. Don’t forget that, at the end of the day, how your business handles its money determines what you will eventually end up in your wallet!
Because you want to treat your bank account gently
Proper bookkeeping facilitates all necessary checking of your monthly bank statements and ensuring that all data make sense. It’s a procedure known as bank reconciliation. Precise bookkeeping loggings simplify the reconciliation of your bank account and protect you from potentially crucial banking inadvertences that could generate serious trouble.
Because you will easily understand whether your business is profitable
Let’s cut to the chase. Reasonably enough, profit is evidently among the top reasons you have started your own business. Bear in mind though that unless bookkeeping is orderly enough, it will prove difficult to discern whether your business indeed makes a profit. Irrespective of your bank account’s present condition, you should make sure that your firm will preserve its positive outlook throughout the whole year. By keeping accurate accounting books you will be able to monitor how much money you earn against the amount of money you spend. Thus, you will surely be able to understand whether your business is indeed profitable.
Because you want to pay as little in taxes as possible
Failing to monitor your operational costs by accurate bookkeeping will eventually end up in paying far greater amounts of money in taxes than you expected. The reason is simple: expenses cut down your business’s net revenue! Don’t haste to judge this fact as bad thing. Remember that the lower your clear profit is, the less your tax exposure. While credit card and debit card purchases are awfully easy to monitor, less significant expenses made from time to time paid in cash eventually add up to significant sums.
Because you need financing
If things go well with your venture and you think about expanding, you will surely need financing to back you up. Still, when you will try to get it, you will be required to prove beyond any shadow of a doubt that your business is profitable enough and promising. And, as you may already understood, proper bookkeeping consists the basis for such a claim. Accurate accounting books are easy to handle and provide clear information for financial statement reports and balance sheets that are absolutely necessary for adequate financing. In short: without accurate bookkeeping, loans are just a wild wind chase.
So, is it possible to a successful business without proper bookkeeping? Yes, but not for long.
Lastly, make sure you explore your options in other countries offering lucrative conditions and benefits in tax planning.
Philippos Hadjizacharias is the managing partner of PHS in Cyprus. Philippos has extensive experience in corporate and individual tax law, particularly in the area of international tax planning. He routinely advices clients on the Cyprus tax aspects of corporate structuring, mergers and acquisitions, restructuring, joint ventures and cross-border transactions.