Bookkeeping is healthy for a business.  You can see so much about your business operations when your accounting records are up to date. 

I will explain this graphic in the audio recording.

If you are reading through the blog while listening to the audio I am explaining the graphic above. I am discussing the use of net profit for determining taxable income and how that works. I will give you a quick look into flow-through entities. I will also explain the differences between business income taxes and self-employment taxes before continuing to read the blog.

Although income tax calculations are the bottom line it lowers your taxes.  Why?  When you have all sales and all expenses entered or managed through the software we have a better picture for business and money (includes card sales) management.  If you have more expenses than sales then you have a loss.  Not the goal but true.  I have seen business owners pay unnecessary taxes because they did not properly track receipts.  Also, it must be qualified business expenses.  Personal expenses do not count as deductible business expenses even if you have a flow-through entity. Another discussion for another day.  And when you have a profit, you can calculate taxes on the profit, not the gross sale. 

Bookkeeping is tracking what you have on hand and what is due.  Why wait until a vital piece of your product or service is gone when you need it like yesterday?  Tracking, when set up properly, will give you pop-up reminders.  Bank downloads will not do this for you.  We must set things into place to work through processes.

Is bookkeeping really automated?  The answer is no, but when you place accounting processes in place, it creates the entries for bookkeeping, so it is considered automated.  However, there is still work needed on the accounting file.

Accounting Processes that assist with posting bookkeeping transactions are invoices created, payments matched to the correct invoice, bill entry and payment recorded, expenses and receipt tracking, and all matching to the bank downloads.

Tracking Sales.  Create your sales invoices using the accounting software instead of having a bookkeeper add "sales without invoices" or add sales invoices later.  You will need to set up your inventory first for products and services.  The benefits are better tracking of invoices and payments and clients can pay online with most accounting software.  You will need to monitor and track all payment updates. Another crucial is receiving payments added to the correct sales invoices. Great related blog: Timely Invoicing and Bill Management and Accounting Software Expectation Part 1

Paying bills – Tracking and paying bills in the application requires the creation of bills and then showing the payment of bills.  This process only works with recurring transactions and requires a one-time set-up. Ongoing monitoring is necessary.  Someone will need to record the payments to match the bank downloads.  There is also an option to pay bills using accounting software but additional fees do apply. Here is a short tutorial about bill management and a look into the software.

Expenses are purchases that are not usually paid as a bill.  The receipt is tracked as an expense or recorded as an expense and the receipt is added.  You can use expense software for this but do not include bills.

Then all the transactions are matched to the bank downloads and reconciliations can be completed. 

The idea is how to create entries without manually adding them later which I call reactive bookkeeping. 

However, we must realize that automation takes away some tasks, not all.  Your accounting software will help you run and manage your business such as sales and spending for reporting and tracking in one place.  The accounting software is not the "customer relations software".  However, if your client pays on time or pays on account date accounting transactions will let the sales team know when to extend more credit.  Or it allows the small business owner to know the history of a client and whether they must pay upfront.  I can also determine when I need to purchase more items for the cost of services sold or the cost of goods sold.  Invoicing shows my sales so reporting on the profit and loss helps me determine if a specific service or product is profitable, or not.

Can you use multiple systems for accounting?  Yes, if the systems integration.  The goal is to get the transactions into your accounting software safely and securely.  Accurate and efficient. 

Bookkeeping costs more when there are more manual entries than the upfront setup of the accounting process.