“I file my taxes every year, why do I need to do monthly bookkeeping too?”
By Erica Bracey, Business Consultant, Small Business Development Center at Georgia State University
Business owners wear lots of hats and typically find themselves spending more time working IN the business than they do working ON the business. Small business owners are often incredibly proud to report, “I am a responsible business owner and file my taxes on time every year!” However, when asked about book keeping practices and the corresponding financial statements, more often than not, that cheerful smile quickly dissolves into the proverbial ‘deer in headlights’ blank stare.
The IRS has done a great job communicating the need to report revenue and “file taxes” on an annual basis. Unfortunately, the same messaging does not exist to motivate entrepreneurs to manage business records regularly and accurately. What some small business owners fail to realize is that engaging a tax accountant to prepare an annual tax return is NOT a viable substitute for bookkeeping and maintaining good records. While business revenue and expenses are reported on the tax return, it only provides an annual snapshot of the business performance. Using reliable bookkeeping and corresponding financial reports throughout the year provides a business owner with the information and data needed to track performance, identify trends and ultimately manage the business. Taxes aren’t more important than bookkeeping or vice-versa. The bottom line is that you need BOTH!
Five solid reasons business owners need bookkeeping during the year.
1) Monthly statements provide timely business information
2) Profits need to be managed MONTHLY not annually
3) Monitoring Cash Flow is critical to business success
4) Benchmarking – in both business and life the saying is true, “You can’t know where you are going if you don’t know where you’ve been.”
5) Being “Bankable” – Current financial statements are the first items requested with the loan application and set the tone for the entire loan process.