3 Reasons Bookkeeping is Important Year-Round
Whenever tax season comes around, I hear many business owners talk about the need to update their bookkeeping in order to prepare their tax returns. As an accountant, that always hurts my soul a little, because it shows those business owners don’t understand the importance of updating and monitoring their books on a regular basis.
Are you wondering ‘is bookkeeping really important? Why does bookkeeping matter? Do I have to do bookkeeping for my business? My answer is a resounding “YES, bookkeeping is really important!” If I said I have a list of a thousand reasons why bookkeeping matters, I’m sure I would lose a few of you there. So, let’s just stick to 3 important reasons you should update your books year-round (aside from making it easier to complete tax returns).
1. Make Sure You Are Getting Paid
Most small business owners spend the bulk of their time finding new customers and doing work for those customers. If you are in the type of business where your customers don’t pay you in advance or at the time of service or sale, there are additional administrative steps to get paid.
Even if you’re diligent about sending initial invoices to customers, if the bookkeeping isn’t updated, you might not be following up on unpaid invoices sufficiently. You don’t want to work for free without even knowing it. By making sure to review your accounts receivable on a regular basis, you’re more likely to get all the money that you are due.
2. Find “Hidden” Expenses
Credit cards and autopay options make it really easy for businesses to pay their bills these days. But it also means that there are fewer expenses scrutinized by the business owner on a regular basis. With autopay in place and expenses not reviewed in detail, business owners may continue paying for things they no longer use or never realized they signed up for in the first place.
If your business uses a credit card processor to receive payments or sell items online, there may also be “hidden” fees associated with these transactions. These fees are often removed before your business ever sees your money, so the actual cost can be lost if you aren’t separating the cost on your financial statements.
As a business owner, it’s eye-opening to see all the expenses associated with running your business. A $10 monthly charge here, a 2% fee there – these can add up if you aren’t paying attention. If your books are updated and you are reviewing them on a regular basis, these types of expenses are easier to see and evaluate.
3. Identify Fraud Early
As a business gets bigger, it usually means that more people have access to bank account and credit card information. In line with this, more expenses are authorized without the business owner knowing about them. Many times the only way to find out about an expense is for the business owner to review the books.
The bank reconciliation process is a great way for a bookkeeper to identify transactions that might be problematic. By reviewing every transaction, a knowledgeable bookkeeper can flag potential issues – and bring them to the attention of the business owner. And even if something slips through the cracks, if the business owner is reviewing the financials on a regular basis – they can be sure that the expenses of the business are legitimate.
The Bottom Line
I get it – bookkeeping sounds dreadfully boring. But remember if it is boring, that means it’s most likely working. When there are big surprises, that’s when you have a problem. It’s kind of like brushing your teeth – you don’t do it because you enjoy it. You do it as a proactive step to ensure your teeth stay healthy. Similarly, a habit of keeping your books up-to-date and reviewing them on a regular basis helps keep your business healthy. And of course, there’s the added bonus – it makes tax season that much easier.