Many businesses choose to wait until tax season to update their accounting records, but this isn’t optimal. Keeping financial statements revised monthly is an excellent way of staying in tune with the financial health of your business at all times. It also means less work when tax season comes around. If those sound like things your business could benefit from, we’ve got more on the impact of updated accounting records below.
When Did You Last Update Financial Records?
How often does your business update its financial records? Keeping accurate records of all financial transactions your business engages in is legally required by the IRS. Beyond that, they are also critical for helping you prepare financial statements, mainly your balance sheet and income statement. However, these documents are only technically required once a year when you do your taxes.
Is There a Purpose for Updating?
If financial documents are only required once a year, then why would you want to do it more often? Is there even a benefit to doing so? There are actually multiple benefits that make the effort well worth it. Updated financial documents will allow you to make better-informed decisions that are actually supported with real data from your business. Only revising your financial records once a year means that any resolutions you do come to are just guesses that are relying on antiquated information.
Because financial records that are updated every month allows you to stay connected to your business’s financial health, there are a few other benefits that naturally surface. The two most important gains include the ability to pinpoint what aspects of your business are exceeding expectations and those that are not.
These are both great for helping ensure the sustainability of your business while also indicating opportunities for growth. As an added bonus, you will also be perfectly prepared for tax season because all of the work you’d usually be behind on would be evenly distributed across the year.
Pinpoint Prosperity
With strong accounting records, you’ll be able to see where your money is really coming from. You can figure out which clients are making you the most money, and therefore most important to secure their loyalty. As a business owner, you often have limited resources to tackle all the obligations you have. Time is what comes to mind first, because there is a limit to how many things you can handle.
When there is a cap on how much you can accomplish, it becomes quite essential to ensure that the time you do consume is spent in the best way possible. Any facet or clients of your business that contributes to a significant portion of your income should be viewed as areas to continue strengthening. When you dedicate more time to already-flourishing sources of income, you can capitalize on the natural advantage that you already have.
With monthly updates, you’ll also be able to get a snapshot of changes from month-to-month. On a yearly basis, it can be difficult to identify differences to your revenue streams. However, if you update things every month you can also see if specific months of the years are particularly successful. When you identify this, you can make it a point to dedicate more time to that function during that month in the future.
Identify Underperformance
While updated records will help you identify your naturally successful revenue streams, they will also tell you what is unsuccessful. This is also really important because of your limited supply of time. If you should be dedicating more time to strong components of your business, then you should absolutely not be focusing on areas that don’t work.
Consider how you currently spend your time during an average work week. Is there something action or obligation in particular that repeatedly takes up a good amount of your time? Chances are, there almost definitely is. Now think about whether or not that responsibility is producing actual revenue for you.
If it is, is it making enough to justify your time commitment to it? Look at the strong areas of your business – is this commitment anywhere near the same ratio of money earned against time spent? In all likelihood, you probably have multiple functions within your business that may no longer be worth doing.
Often this is as a result of outgrowing old clients, but sometimes some partnerships don’t pan out as planned. It may not be comfortable, but you will be much better suited by trimming underperformers.
Tax Readiness
How do you feel about your business’s tax situation at the start of each new year? If you’re dreading the process of updating, organizing, compiling, revising your financials to file your taxes, then you definitely aren’t alone. At the same time, your situation is completely fixable if you’re willing to commit to staying on top of your accounting records.
To put things into perspective, leaving your financial records outdated until the start of each new year is similar to only cleaning your house before guests come over. The longer you delay something like cleaning, the dirtier and worse the situation becomes. As time goes on, your house will only continue to get messier. Your books and financial records are the exact same way. Each month that passes without updating your financial records is just another stack added to your tax season obligations.
Skilled Accountants for Financial Document Preparation
There is surely no room for debate when it comes to the benefits of keeping monthly-updated accounting records. Doing so will allow you to determine what clients and services are generating you the most revenue, but it also shows what just isn’t working. You’ll also have your records in order when you need to prepare your taxes. However, trying to do this on your own will steal precious time away from you that could be better focused on actually making money.
To help your business target successful and underperforming areas within it, you should find accountants with the expertise needed for full-fledged financial document service. With more than 30 years in the industry, Evergreen CPAs can prepare, compile, or even review financial documents per your business needs! Invest in the future of your business and commit to monthly-updated accounting records by giving us a call!
