Why bother Bookkeeping as you go when you could leave it all for your tax accountant?
Small business owners have a lot on the go and often leave the bookkeeping until tax time. Balancing priorities is a way of life for any business owner and bookkeeping often does not make it to the top of the list.
But what if…
- You undertake a new contract with a big customer and find that your bank balance is low just when you need to bring in an additional resource who has inflexible payment terms?
- Suppliers start to call looking for payment and become less cooperative?
- A payment to a supplier is cashed and suddenly your bank manager is calling because you have no line of credit in place?
These issues are all distracting at best and affect your ability to focus on your business productively.
What’s wrong with relying on bank statements or bank balances?
Monthly bank statements provide a good snapshot of money flowing in and out of your account over the previous month, but they do not provide any insight on what to expect tomorrow or next week. Your bank balance is just another data point on the continuum.
Bank statements or online balances don’t tell you that there is an extra payroll next month, how many cheques you have written that have not yet been cashed, or whether clients have paid you on time. It is not unusual for business owners to manage their business this way. But there is another way.
The case for recording invoices and expenses as you go
When invoices and expenses are recorded consistently and routinely, business owners can review and assess how their business is really doing. If you don’t know how you are doing until the end of the year when the tax accountant produces a financial summary, it may not only be a nasty surprise, but the delay may cost you money.
- Are your expenses in line with what you were expecting and if not, why not? Getting this information as quickly as possible lets you take corrective action quickly
- Promptly invoicing your customers improves your own cash flow and also strengthens customer relations by demonstrating an organized and reliable business operation.
- If you are spending more than you realized, you can change that spending and reduce the impact before year end has come and gone.
- Trends in sales will be more clearly identified, allowing you the opportunity to be proactive.
- Accessing a line of credit or other borrowing facility is less expensive and much easier if you plan ahead and build a relationship well in advance with your lender. Building credibility with current financial reporting as well as understanding your business potential gives you greater negotiating power. It also gives your lender much better tools to work with to help you.
Capturing your business activities as you go in a routine manner is a huge business asset because it allows you to make more knowledgeable business decisions. It is a foundational support whether you do it yourself or hire a bookkeeper to do it for you. With good and timely bookkeeping in place, you can prioritize more effectively and focus on building your business.
Business Sherpa Group is focused on helping small businesses to thrive.
We recognize the value of experienced but flexible support to meet unique business needs. We offer bookkeeping services as well as Controller and Virtual CFO support sized to meet the needs of small and medium sized organizations for the long term.
About the Author
Jan O’Donnell is a virtual CFO and leads the Finance & Administration practice for the Business Sherpa Group. As a Chartered Professional Accountant (CPA), she has been providing contract CFO support to high technology, small businesses and not-for-profit clients since 2004. Jan is passionate about combining her business and financial management expertise to provide a hands-on approach to building and enhancing the finance role within small and medium-sized organizations.