During my time working in public accounting, I heard many excuses why my clients hadn’t done their bookkeeping. They didn’t have time, they didn’t know how it was boring. It seemed like they would rather do ANYTHING other than their bookkeeping. I can’t say that I blame them. Unless your business is accounting or bookkeeping, you didn’t start your business thinking about bookkeeping but there are three very important reasons why it’s important to keep your business records up to date.
When your business records are up to date, you can:
Make more money,
Increase profit, and
Now that’s sexy!!
But how does simply tracking your business income and expenses accomplish all this?
Make More Money
When you track your income, you quickly learn what product or service is bringing you the most sales. Once you know this, you can then use this information to sell more of that product or service and in turn, make more money. You might want to focus your marketing efforts on the product that is making the most sales for you or you could create new products or services that are related to the high-selling product or service (like an add-on) to market as a no-brainer upsell.
You also may notice that some products or services just aren’t working out for you. This is actually a great thing to discover because you can focus your time on the things that are working and either ditch those that aren’t or rework them and try them again another time.
Knowing what product or service brings you the most income isn’t going to be relevant if you only sell one thing. If that’s the case, when you are tracking your income on a regular basis, you’ll start to see patterns like selling more during certain months or seasons of the year. This can help you plan your marketing to really promote yourself during times of high sales to take advantage of this. You can also rethink your marketing strategy during slow times to try and smooth out your sales and gain more consistency from month-to-month.
This may seem the same as making more money but making more money is about sales and increasing profit is about growing your bottom line (the money you have left over after you’ve paid your business expenses). When you track your income and expenses on a regular basis, you know exactly where your money is going and you may notice some expenses you can cut back on. When you compare your income and expenses from month-to-month, you might notice that your spending seems really high in one or more expense categories compared to previous months and these are great places to investigate what’s going on and possibly start cutting back.
A common area where businesses overspend is advertising. When you’re tracking everything going in and out of your business bank account, you will know right away if your latest advertising efforts have brought in extra income or if they were a waste of time. If they were a waste of time, then you’ve caught things early enough you can cancel that campaign and focus on what IS working.
How can you save tax simply by keeping your bookkeeping up to date?
If you’ve been monitoring your income and have noticed it increasing then you can set up a meeting with your accountant and determine if you need to make estimated tax payments or installments. Too often I see business owners wait until the last minute to record their income and expenses for an entire tax year and then they’re shocked when they find out they owe tax. This can be avoided by recording things on a regular and frequent basis.
When you’re self-employed, it’s not just income tax you need to worry about. You also pay self-employment taxes which are calculated on your tax return as well so there’s a bit of a double-whammy at tax time. Don’t worry, if you establish a regular bookkeeping routine, you’ll know when your income is on the rise and you can start making quarterly tax payments and avoid the nasty surprise when you file your tax return. If you’re consulting with your accountant on a regular basis, you’ll have nothing to worry about.
How often you do your bookkeeping (or have someone do it for you) depends on the type of business you have and your schedule. It’s important that you establish a routine that you’ll stick to. I highly recommend recording your income and expenses every two weeks especially if you have a high volume of transactions. If there isn’t a lot going through your business bank account right now (say ten transactions or less), you can get away with monthly bookkeeping but definitely don’t wait any longer than a month between bookkeeping sessions.
Sticking to this frequency will ensure you don’t get overwhelmed or end up spending hours and hours sorting through your receipts. That’s definitely not sexy and nobody wants to do that!! Consider an accounting app like Wave or Xero. There are many great accounting apps out there that save a ton of time by allowing you to import transactions directly from your business bank account. Many of them also provide free training videos and have excellent customer support. Just be sure and get a recommendation from your accountant so you know the app is legitimate and will do everything you need it to do for your business.
If you’re planning to do your own bookkeeping, make sure you set aside some time when you’re less likely to be interrupted. Bookkeeping always goes so much smoother without my little ones popping into my office, asking me if they can have a cookie or watch some TV!! I love my kids but sometimes I really wish my office had a door!
Alright, now that you know the benefits of recording your business income and expenses consistently and frequently, go mark those bookkeeping sessions in your planner or set something up with your accountant and get ready to make more money, increase profit, and save tax like the sexy savvy business woman you are!!
Share in the comments below: What is your #1 struggle when it comes to doing your bookkeeping so that you can make more money, increase your profits and save on your taxes?
Michelle Cornish is an accountant with a passion for writing. She is the creator of the online course Bookkeeping Boot Camp and author of the self-published book Keep More Money: Find an Accountant You Trust to Help You Grow Your Small Business, Increase Profit, and Save Tax.