The days of shoebox accounting are long gone. Affordable accounting software products have made it easy to keep up-to-date and accurate records, even if you are going the DIY route.
But still, as entrepreneurs, we have more important things in our focus–growth, revenue, profits–and often, we neglect our books. Like a stinky pile of dishes in our sink, they just keep stacking up until one of two things happens: A) April comes or B) we give up and make someone else do them.
It’s possible to save yourself these headaches by keeping your books current year round.
6 Reasons Why You Should Keep Your Books Updated Year Round
1. Monitor Your Business
Probably the most important reason for keeping your books up-to-date is so you can have a clear view of your business. Books provide a snapshot of your company’s financial viability and books that are outdated or inaccurate, provide a “snapshot” that is out of focus.
The financial reports and detail that come from regular bookkeeping helps you to know the status of your business. You can track which items are selling or not selling. You can see where the majority of your cash is going. You can identify areas of weakness and help them grow.
You may think that you are doing all of things already, but you may be surprised by what the data reveals. You may have a real problem and not even be able to tell until you look at the numbers. Keep your books up to date to review growth and performance more frequently and more accurately.
2. Create Accurate Budgets
Financial reports are an integral part of successful businesses. Especially if you are just starting out, you need to have a clear view of what your budget looks like everyday.
Maintaining current books allows you to monitor how much you actually spend and how much you actually have. Reports that track your profitability over time (Income statements) and reports that tell you how much your business is actually worth (Balance sheets) should be referenced frequently to determine what the next steps are for your company.
If you do not have these reports available as you are making business decisions, you may miss a step moving forward. Accurate books allow you to confirm your transactions and make sure your money is going where you want it to go.
3. Expedite Invoicing Cycles
Without funds, your business will fail. You are providing a great service and you have customers, but unless you know who owes you money and hold them responsible for paying you, your business will not function. You may never receive a payment if your books are not in order.
Use your books to track Accounts Receivable and expedite your invoicing cycle. The longer it takes you to straighten out your books, the longer you will go without money that is owed to you.
Additionally, you could miss payments of your own if your books are not up-to-date. One CEO said that hiring a bookkeeper saved his company $500-1000 in late fees per quarter.
4. Don’t Miss Deductions
When the taxman comes, we all want to get our share of the money. Keeping your books current helps you to track your deductible expenses. Deductions like vehicle expenses and airfare may be forgotten if you don’t record them right away. Make sure you are getting every tax advantage you deserve by tracking your expenses regularly and categorizing them appropriately.
Your current expense report will serve you not only in April, but as you work to monitor your business as well. Review income and expense categories often, as miscategorizing could lead to paying more taxes than you need to.
5. Survive Government Audits
If your small business is thriving, good for you! Just be aware that as your gross receipts increase on your Schedule C, the odds of being audited increase–up to 12.1%.
Regular bookkeeping helps your prepare your tax returns early and without fear. Rather than desperately and haphazardly throwing together a list of possible expenses, use online or desktop software (like Quickbooks 2019 or a competitor) throughout the year, so it’s easier to remember what’s gone on and you’re not hurriedly guessing at tax time.
Self-prepared tax returns with a Schedule C are often pulled for examination, so save yourself the trouble of a government audit by getting your ducks-in-a-row ahead of time.
6. Maintain Financing Options
Finally, small business owners will be most successful if they can keep all financing options available to them. If you find yourself in an emergency and need to get approved for a loan right away, you need to have current financial records.
Not only is that kind of data crucial to a banker or investor, you will look unprofessional if you are trying to get a loan without having a clear knowledge of your current financial standing.
Remember, your books are not only used for tax returns but to grow your business. Keeping current books is actually killing two bird with one stone. You alleviate the stress of tax season as well as give yourself a better vision of your financial progress.
Whether you are doing your own bookkeeping or hiring a professional, keeping your book up-to-date year round–and not just in April–will save you a lot of money and headache in the end.
Jaren Nichols is Chief Operating Officer at ZipBooks, free accounting software for small businesses. Jaren was previously a Product Manager at Google and holds an MBA from Harvard Business School.