It’s true – Bookkeeping Can Help Your Business in a Recession!
With the economic landscape changing quickly every day, it could be tempting to push bookkeeping aside for more pressing matters. Who cares about debits & credits when you aren’t sure if your small business will survive?
But do not discount up-to-date books just still.
They can be your business’ good bet at securing loans, and making quick financial decisions when it matters most.
What is Bookkeeping?
It is an organized way of tracking and records the details of income and expenses by a business using bookkeeping software, printed books, and spreadsheets such as Excel. All people who earn money from their self-employed activities and who operate as sole proprietors are in business and require to have a better bookkeeping system of different kinds to track their finances.
This includes solopreneurs, entrepreneurs, bloggers, creatives, consultants, coaches as well as other goods and service providers. Bookkeeping is part of the full accounting procedure which gets the business accounts ready starting from the initial entry of financial transactions all the way to filing tax returns and for incorporated and limited businesses the preparation of year-end accounts by an Accountant.
Also, small business doing their own bookkeeping, but there are plenty of people who choose bookkeeping as a career for employment by companies or be self-employed professional bookkeepers beginning their own bookkeeping and consulting businesses.
The Purpose of Bookkeeping
What’s the importance of bookkeeping for a self-employed person? It allows them to know if their business is making a profit and a loss and is the basis for income tax calculations.
The purpose of bookkeeping is to
Enter the financial transactions resulting from business activities exactly and in accordance with great bookkeeping practices
And to communicate the financial results of those activities.
Here are ways bookkeeping can help your business in a recession
Bookkeeping and the Paycheck Protection Program
If you were not able to receive a PPP loan during its 1st round, you are in luck. The Paycheck Protection Program is back for round two, and apps are yet open. There are some documents you will need for your PPP application. If you are self-employed and have not filed your 2019 tax return, you will need to produce an annual income statement. And, if you’ve more than one business, you will need to have separate finances.
Here is what your lender can need from you to prove your payroll expenses:
- Payroll processor records
- Payroll tax filings
- Payroll tax forms (Forms 940, 941, W-3)
- Form 1099-MISC records
- Schedule C for a sole proprietorship
Having your books in order makes the procedure much simpler, and if you’ve employees, the simplest way to get the financial info you will need is by downloading a payroll report through your payroll provider.
PPP loan forgiveness
In order to turn your PPP loan into a non-taxable grant, you will have to abide by the loan forgiveness guidelines. Not only do you require to spend your loan on certain costs, but you will have to prove those expenses, too.
The PPP funds can be utilized for:
Payroll—salary, wage, sick leave, vacation, medical, parental, and family, health advantages (minimum 75 percent of your loan must be used for payroll prices. Payments to independent contractors can’t be included)
Mortgage interest—if your mortgage was signed before Feb 15, 2020
Rent—as long as the lease agreement was in impact before February 15, 2020
Utilities¬- as long as service started before February 15, 2020
These are the needed documents you’ll need to collect to provide with your PPP forgiveness application. Your lender can have more requirements.
Documents verifying the number of full-time equivalent workers on the payroll and their pay rates, for the periods used to verify you met the staffing and pay requirements:
- Payroll reports from your payroll provider
- Payroll tax filings (Form 941)
- Income, payroll, as well as unemployment insurance filings from your state
- Documents verifying any retirement & health insurance contributions
- Documents that verify your eligible interest, rent, and utility payments
- Maximize your tax deductions
If you have not filed taxes still and your deadline was April 15, great news. The IRS has extended this deadline officially to July 15, 2020.
This extension includes making payments on any taxes owed, so you can defer without penalties and interest. This added time gives you the opportunity to carefully comb through your business costs for the year and maximize tax deductions. If you have bookkeeping completed for 2019, this procedure will be a lot easy.
Double-check your inventory management process
Evaluate what might be done to decrease inventory prices without sacrificing the quality of goods and inconveniencing consumers. Is it possible you’re ordering too many of a specific product? Is there a drop-shipping alternative that will work for you, removing shipping and warehousing costs? Your small business can want to evaluate the option of outsourcing if an item may be sourced somewhere else at a great cost. Though your small business may feel comfortable with specific vendors or suppliers and its current procedures, now is the unique time to evaluate alternative options that can save you money.
Never stop marketing your business
Several small businesses make the mistake of cutting back and completely removing their marketing budget during lean times. Actually, it’s smart to increase your voice in the midst of a recession.
Marketing through a recession means there isn’t as much marketing noise, so you do not want to shout as loud for your message to be heard. Furthermore, your continued presence during difficult financial times will be interpreted by your customers and prospects as a sign of stability, showing you’re strong enough for surviving the recession and have the leadership to continue to thrive.
Reducing your marketing presence leaves a gap for competitors to take benefit and fill the void. Your marketing strategy should be updated regularly based on the changes in economic situations. You need to avoid generating resentment while being sensitive to the mood of your potential customers and prospects.
Need help with Financial Audits and Bookkeeping?
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