We’ve all fallen victim to procrastination—whether on grad school applications, an awkward break-up or the dreaded tax deadline. But procrastinating on your taxes isn’t just damaging your springtime stress levels, it could be damaging your business.
Whether you are a freelancer, small business owner or budding entrepreneur, keeping your books up to date year round is an awesome (but oft neglected) strategy to help grow your company.
Year Round Bookkeeping
Many people think that bookkeeping is only related to tax reporting, thus, they only worry about their books once a year. This is a huge mistake for businesses looking to refine their financial vision and grow their business. Books provide a snapshot of your company’s financial viability and records that are outdated or inaccurate provide a “snapshot” that is out of focus.
Keeping your books up to date year round will not only protect you when the taxman comes, it will give you a better picture of your business.
The DIY Route
If you are an entrepreneur or small business owner, you likely have a Do-It-Yourself mentality. Even though taxes are daunting to just about everyone, DIY bookkeeping doesn’t have to be. The days of storing tax information in a shoe box or file folder are long gone—there are multiple accounting software products that are built for the independent contractor or small business owner.
Whether you are a looking for a desktop product, online option or even a mobile app, there are many affordable options. Invest in the software that works best for you. And if you’re already using an accounting program, but are unhappy with it—make a change!
As a small business owner, you’ve got lots of records to keep track of and these software products make reconciliation easier by pulling in bank transactions and other financial data. Especially in an age digital taxes and e-filing, having your books digital is a great asset.
Or Hire a Professional
If taxes are still scaring you, there’s no shame in hiring a bookkeeper or accountant. These tax professionals careers are based on staying on top of latest government regulations and relevant deductions. They can be a great service when the tax deadline comes.
Even if you do decide to hire a professional, you will likely save on costs if you hand over books that are current, accurate and good-to-go.
Grow your Business
Don’t fall among the sad majority who save their bookkeeping for the tax deadline. Keeping your records current has multiple benefits to your growing company. Here are four ways that year round bookkeeping will grow your business:
1. Cash flow: Without a regular cash flow, your business is doomed to fail. Current books give you an advantage by measuring and monitoring your Accounts Receivable. These outstanding payments could be holding you back if you don’t expedite your invoicing cycles.
If you don’t have an up-to-date look at your invoicing, you may miss needed payments. The longer it takes you to straighten out your books, the longer you will go without money that is owed to you. Unfortunately, you may not ever receive some payments if you don’t know you’re still waiting for them.
Updated books will help you track your own outstanding invoices as well. There’s no reason to incur late fees for neglected bills. Regular bookkeeping—either DIY or professional—can help you retain much needed cash on hand. One CEO said that hiring a bookkeeper saved his company $500-1000 in late fees per quarter.
2. More financing options: Small business owners should keep as many financing doors open as possible. Up-to-date books will provide you the greatest opportunities to get the funding you need.
Whether you are approaching a banker or an investor, they will ask about your books. This kind of data is crucial to lenders as they will want to know about the actual financial state of your business, not the theoretical state. Not to mention, you will look unprofessional if you try to solicit funds without having a clear knowledge of your current financial standing.
Additionally, if you find yourself in an emergency and need to get approved for a loan right away, you must have current financial records on hand.
3. Best the Taxman: When the tax season comes, you want to get your fair share of the money. Regularly updated books will help you to maximise deductions and avoid potentially hazardous audits.
If you can regularly track and categorise deductions, you will get every tax advantage. Business expenses like vehicle costs and airfare may be forgotten if you don’t record them right away. Taking the time to accurately reconcile and review categories will save you from paying more taxes than you need to and from being caught off-guard by an auditor.
If you do have the misfortune of getting pulled for an audit, the process can be (mostly) stress free if you prioritise year round planning. Rather than desperately and haphazardly throwing together a list of possible expenses, you’ll be prepared to show off your pristine and accurate records.
4. Financial intelligence: Just because you’re an entrepreneur, doesn’t mean you’re an accountant. Keeping your books up to date can improve your financial IQ and help you understand the underlying data that results in your business growth or failure.
The kind of information available to you from accurate books will allow you to produce regular financial reports for analysis. With these reports, you can review growth and performance more frequently and more accurately.
Not only are you saving yourself tax anxiety and avoiding financial disaster by maintaining current records, but learning to use that data to create financial reports will provide opportunities to thrive.
Neglecting Books is Neglecting Growth
We know what it’s like to run a business. You have a lot on your mind—growth, revenue, profits—and it’s easy to neglect your books. But remember, these records are not only used for tax returns but to build your business. Keeping year round books could be the one growth strategy you’ve been neglecting.
By: Jaren Nichols
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.