We get a lot of new prospects this time of year who think that bookkeeping is only good for filing taxes. To be honest, we get a lot of monthly recurring bookkeeping clients this way.
It typically goes something like this:
The prospect approaches us and says, "My CPA says I need a bookkeeper so that I can file taxes."
However, there is a lot more value that our bookkeeping services offer beyond just filing taxes.
Here are just a few of the major reasons why handling your bookkeeping only once a year is unhealthy:
1. There is a much higher chance of mistakes. If you sit down in March and look at a transaction from January of last year, there is a high likelihood you may not remember exactly what you bought or sold. Misclassifying income and expenses can lead to a higher tax bill. Additionally, if you make any mistakes, it is going to cost you in the event of an audit.
2. Overpaying for inefficiencies. While it may seem more efficient to bang out all of your bookkeeping once a year, I guarantee you it is not. Due to the amount of time that has passed (as discussed in #1), much of the time needed for that annual review is spent researching transactions. Handling your bookkeeping on a daily, weekly, or even monthly basis is highly recommended.
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3. How can you run a business without constant bookkeeping updates? Seriously, I don't understand how any competent business owner can tell me they are running a successful business without updated financial reports. If you are the type of person who runs their business strictly based on a cash balance in the bank, then you are doing it all wrong. Having an accurate profit & loss, balance sheet, and budget, along with a financial forecast is the bare-bones minimum set of essential reports you need to produce and look at on a regular basis.
So, you got your taxes filed; phew! Huge relief and you bought yourself another year, right? That is certainly one approach.
Or you can put a regular bookkeeping process in place and learn how it can benefit your business.
The reason that many small business owners don't find value in their bookkeeping is because they don't have a system in place that regularly provides them with accurate and useful information.
The first step in finding value in your bookkeeping is keeping it regularly updated. Without regular bookkeeping updates, you are foregoing access to important financial information and running your business blind.
Your bookkeeping should be a valuable tool that you use to grow your business.
Once you have a bookkeeping system in place that is regularly providing you with accurate reports, you can figure out how to use them.
Don't get too consumed with looking at your past financial performance; instead, obsess about the future.
Building a financial forecast at the close of every single month is one of the most powerful ways you can use your bookkeeping system.
You should use your bookkeeping system to analyze key financial reports and make critical pivots to keep your business on track. When looking at your forecast, you want to look for both threats and opportunities and then make the necessary adjustments.
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