If you’re like a lot of business owners, you may be in the habit of putting off bookkeeping until right before tax time. I completely understand. You’re busy, and it’s not the most exciting part of running a business.
But waiting until the last minute can hurt you in the long run. In this blog post, I’ll explain why this is. I’ll also talk about a few benefits of staying up-to-date with your finances.
Catch-up Mode Is Costly
When you let your books pile up, you end up in “catch-up” mode—digging through months of receipts, trying to remember what a payment was for, and hoping you didn’t miss something.
And once you’re in that mode, you’re rushing to meet deadlines. When that happens, you don’t have time to review your numbers, make adjustments before year-end, or take advantage of tax strategies.
Scrambling to the finish line means you’re simply getting it done (most likely after work). So, instead of decompressing after work, you’re doing bookkeeping.
The Dangers of Reactive Bookkeeping
When you’re rushing to get your books in order, you’re doing what I call “reactive bookkeeping.” And that can lead to errors that drain your cash.
For example, if you’re just reacting to your books instead of keeping them up-to-date and timely, you won’t know if you have outstanding taxes. And you won’t know if you’ve been paid everything you’re owed.
If you keep tackling your bookkeeping in a reactive way, and you keep making errors, eventually, you’ll need to go back and clean up your books (and that can take a lot of time).
Even if you eventually catch up, it will be harder, slower, and more expensive than staying on top of it in the first place.
Disorganized Books Can Cost You Money
When your books are disorganized, it’s easy to be stressed. And when you’re stressed, it’s easy to forget important tasks. For instance, you may forget to send out an invoice. And that could mean you don’t get paid until much later than you would have if you’d have been organized and sent it out on time.
Late invoices are just one of the bad things that can happen from having disorganized books. If you fall behind on your bills, you could start racking up late fees. A lot of vendors now charge 1.5% interest a month on anything late. Payroll taxes filed manually can be missed altogether, leading to even bigger problems.
There’s also the cost of your time. Every hour you spend organizing your books is an hour you’re not serving customers, managing your team, or growing your business.
Why Regular Financial Maintenance Matters
Being behind on your finances can also come back to bite you if you’re ever audited.
While audits aren’t common, they do happen, and the IRS’s first impression of your business matters. Organized, reconciled records signal that your business is being run well. Disorganized files invite more scrutiny.
So, always have your accounting ready for an audit.
Auditors tend to follow the trail they see. If your books look chaotic, they’ll dig deeper. If everything is clearly documented and reconciled, they’re more likely to review quickly and move on.
That’s why reviewing your books monthly is ideal for most businesses. I wouldn’t recommend reviewing them any less frequently than quarterly. Six months without touching your books is too long. Errors multiply, and clean-up becomes far more difficult.
Benefits of Keeping Your Books Updated and Reconciled
Bookkeeping isn’t something you cram into a week in April. It’s a year-round discipline that helps you run your business. When your numbers are current, you can:
- Make better business decisions, because you know what you have (and don’t have)
- See your tax position ahead of time
- Make strategic contributions to retirement accounts before year-end
- Avoid late fees and penalties
- Feel prepared in case of an audit
- Have more time to spend growing your business instead of catching up on your books
- Reduce your stress during tax season
Taking care of this can be difficult to do yourself, but your future self will thank you if you do. If you need help with year-round bookkeeping, schedule a consultation with me by clicking the button in the top-right corner.
Bottom Line
When your numbers are accurate and up-to-date, you can spot problems early, take action, and be ready in plenty of time before taxes are due. And if you need help finding a CPA, let me know. I’ll help you keep your books in order and refer you to a trusted CPA for the tax stuff.
There are a lot of costs that come with waiting right before tax season to clean up your books, but there are also plenty of benefits to keeping them organized year-round.
If I can help you keep everything updated and reconciled on a regular basis, let’s talk. Click the button in the top-right corner to schedule a consultation.
