Bookkeeping - Reasons Why You Need To Update Your Books Regularly

Entrepreneurs of all walks of life tend to have a few things in common, and an almost universal trait is that they dislike doing their own bookkeeping. Now this isn't because they're trying to hide something, it actually has more to do with the fact that they're busy running their business and will always try to get around to doing their bookkeeping later. What happens next is at year end taxes come due, and they may cram a pile of receipts (or bank statements) into a return and hope for the best, not even taking into consideration the potential tax credits and deductions that they're missing out on.

The simple act of keeping your books clean during the year can prevent situations that cause audits or penalties, and here are some reasons why you should keep your accounts in order:

1. Current Financial Standing

There are a lot of businesses out there who are trading at a loss without realizing it. In fact some companies assume they exist in a state of financial liquidity for several years, only to have to suddenly declare themselves bankrupt when the "holes" in their bookkeeping and accounts become readily apparent. Keeping an eye out for your accounts receivable/accounts payable (invoicing) and what you have going on financially just once a week can be enough to stave off disaster over the long-term.

2. Business Planning

If you have to apply for additional financing from a bank they usually want to see a current set of books, tax returns, or financial statements of your business - the same applies with investors of any kind. Presenting them with a poorly created set of financial records for your business isn't going to help - most investors will walk at this point seeing your lack of care as a warning sign. Remember if you don't care about keeping current with your own income and expenditure then you're going to have a hard time convincing banks and investors you'll be treating their money with respect.

3. It's The Law

Like it or not you are required by law to keep an accurate account of your financial dealings...for 5 years after the transactions actually take place. Now while trying to cobble together an IRS return in a few days might just happen, there's no way you're going to be able to accurately recall financial transactions from 5 years ago. So the sooner you start doing your due diligence towards your books and keeping financial records, the better off you'll be.

In short if you're not keeping complete and accurate records for your business, then you are effectively committing the equivalent of commercial suicide.

If you're not comfortable keeping your own accounts (99% of entrepreneurs aren't and that’s fine) then simply engage the services of a professional accountant or CPA instead. A great way to do this is simply ask business colleagues to recommend somebody they trust and/or use themselves. Once your books are being updated by a professional that will leave you free to focus on your business growth – and this financial freedom is something you can't put a price on.