Bookkeeping has always been a paint point for Entrepreneurs. It is, perhaps, the un-sexiest way to spend your time. Who has time to think about books when you’re busy growing your business? But unfortunately bookkeeping and taxes are a necessary evil. Here are 5 reasons books should be done monthly throughout the year, and not just at tax time.
1. It will save you money on tax preparation
By having your books reconciled monthly, at year end you can hand your tax preparer or accountant a detailed profit and loss statement. This makes their job a LOT easier. Without digging through bank statements and receipts, they can get right to preparing your tax return. Tax preparation rates are often much higher than bookkeeping prices, so it’s usually better to pay a bookkeeper to do the books, not the tax preparer.
2. You can make sure you don’t double count your income
This is a big one. Often a tax preparer has no way of accurately counting your income without simply looking at your deposits and comparing them to your 1099’s. If they don’t add up many tax preparers will use the higher number to be safe, in case you never received a 1099. The IRS compares 1099’s to the income you reported to check for discrepancies. This may leave you vulnerable for an audit. But many times deposits are made though transfers or with after tax money. Thus you may be paying taxes on income you never made. OUCH!
3. CPA’s don’t have time during tax season to find all of your deductions
By doing your books monthly, you can be on top of every possibly deduction. At the end of the year it’s nearly impossible to remember that you bought office supplies at Target in February. I can’t remember what I had for dinner last night! The unfortunate thing is that most tax professionals don’t have time to ask. Tax time is crunch time, and they don’t have time to call you over every little transaction (nor would you want to pay them to do that). This often leads to thousands of dollars in missed deductions and overpaid taxes.
4. You can plan for tax time in advance
Unexpected tax bills are the WORST! By knowing what is going on with your business monthly, you can employ strategies to reduce or eliminate your tax burden while you still have time. Once the fiscal year ends, there is almost nothing you can do to lower your taxes.
5. You can know where your money goes and make sure it isn’t going to the wrong places
If you are like many business owners, you have asked yourself where your money went many times over. This is especially true if you have automatic payments or have someone else pay your bills. I once severely overpaid my water bill for months due to a leak because my assistant didn’t realize how much water should cost. I also paid for internet service on an iPad I didn’t use anymore for months. All because it was an automatic payment I forgot to cancel. If I had a monthly bookkeeping service at the time that delivered me monthly reports, I would have caught those things right away. The same goes with finance and service charges. Often these can be reduced or eliminated but we might not even catch them since they are buried deep in our statements. Worst of all, you may find fraudulent or duplicate charges on credit card or bank statements that would have otherwise gone undetected.
Many Entrepreneurs avoid the perceived expense of a monthly bookkeeping service, but that could be a costly mistake. The smart money knows the value of being on top of your taxes and expenses before it’s too late.