Why is Monthly Bookkeeping Important?
Bookkeeping is a task that many business owners dread and often times put on the backburner when they are prioritizing what is most needed of them to run their business. Unfortunately, bookkeeping is a vital part of owning and running a profitable business. It’s more than just a way to stay organized- it is crucial in ensuring that you are making the right decisions for you and your growing business. If you only do it once or twice a year it is impossible to be confident that the information you have is accurate. Here are some of the benefits of monthly bookkeeping:
Keep Track of Cash Flow
Running tight, or even out of cash, can be one of the most stressful moments in a business owners life. If your books are being done monthly you always keep track of the money coming in and out of your accounts so there are fewer or no surprises.
Create Financial Statement
Financial statements such as your Income Statement, Balance Sheet, and Cash Flow Statement are essential for understanding your business from a financial standpoint. Reviewing these documents monthly helps you get a clear understanding of how your business is performing, keep tabs on accounts receivables and helps you make future decisions about spending and tax planning.
Catch Errors or Fraud
Reconciling your books every month will help you catch errors or fraud in their tracks. Every transaction will be accounted for to determine if there are discrepancies between your statements and what’s being recorded on the books.
Be Prepared and Organized in Case You Need a Loan or Apply for a Grant
It’s always important to be prepared for the unexpected. As we all experienced during the Covid 19 pandemic- being organized helped tremendously when it came time to apply for government assistance or loans. Don’t wait for an emergency to happen to get all your ducks in a row. Monthly accounting ensures that you will have all the information at your fingertips when these unfortunate situations arise.
Make Life Easier For Tax Time
It is very difficult for your CPA to save you as much money as possible if your records are a mess. Scrambling during tax season to get your accounting caught up will only ensure that expenses are missed, and mistakes are made. Having monthly updated financial reports will allow them to do quarterly tax planning and make sure there are no surprises come tax time.
Be Prepared in Case of An Audit
With the newly passed Inflation Reduction Act, there is almost $80 billion allotted to the IRS over the next 10 years. Although not confirmed yet, many lawmakers believe at least $45 billion will be used to increase enforcement- which means audits will increase. In the event of an audit, you will need to have financial documents available for review. Having your financials updated monthly will make it easier to find what you’re looking for to go through an audit. If you can’t provide substantial documentation for an audit, you may be required to pay additional taxes and penalty fees.
