The Cost Of Only Doing Bookkeeping At The End Of The Year

The Cost of Only Doing Bookkeeping at the End of the Year

Every March business owners get really stressed out. They have to dig out invoices download bank statements in a hurry and spend a whole weekend trying to remember what a cash payment from July was for. If this sounds like you you are not alone. A lot of medium businesses only do their bookkeeping once a year instead of doing it all the time.

It might seem like it is not a deal at the time. You get through it you file your tax returns. Then you can move on with your life.. This way of doing things actually costs you money. It is just that you do not see it all at once. You see it in bits throughout the year.. Most business owners do not even realize that these little problems are connected to the way they do their bookkeeping. Lets look at what it costs to only do bookkeeping at the end of the year.

 

 The Hidden Cost of Losing Information

Our memories are not very good. Receipts do not last very long. Sometimes they even fade away if they are printed on paper. When you try to write down a transaction from ten months ago you have to rely on a receipt that's hard to read and you have to try to remember what was going on at the time. This means that you might forget some things. You might leave out a cash expense because you cannot remember what it was for. You might forget a sale because it was not billed properly. These are small amounts of money but they add up.. They also make your financial records inaccurate. You end up filing your tax returns with information, which is not just a problem with accuracy. It can also get you in trouble if someone notices a mistake later.

 

 Missing Out on Tax Planning Opportunities

You cannot plan your taxes well if you only do your bookkeeping at the end of the year. Once March 31st is over you have missed your chance. You need to make decisions about things like advance tax payments when to make expenses and what investments to make during the year. If your books are only ready at the end of the year your accountant cannot give you advice during the year because they do not have the information they need. This means you might pay taxes than you need to just because you did not plan ahead.

 

 Not Knowing What is Going On with Your Cash Flow

Running a business without knowing what is going on with your money is like driving a car without looking at the road. You might have an idea of how things are going but you do not know the important details. You do not know how money your customers owe you how much you owe your suppliers or if your expenses have gone up. Businesses that only look at their books once a year often find out about cash flow problems late. They might find out that a

customer stopped paying six months or that a subscription is still being paid even though it should have been cancelled. All of these problems get found out at the end of the year. By then it is too late to fix them.

 

Compliance Risks Add Up

Doing bookkeeping is not just about knowing your numbers. It is also about following the rules. You need to file your GST returns on time. You need to deduct and deposit TDS on time. You also need to pay your advance tax instalments on time. If you only do your bookkeeping at the end of the year all of these things get. You might make mistakes. You might get fees, interest on delayed payments and notices for mistakes. This is not because you are careless. Because the system is set up to fail when you are in a hurry.

 

The Accountant Fee That Nobody Talks About

It takes a lot time to do a whole years worth of bookkeeping at once instead of doing it a little bit at a time. This means that your accountant has to charge you just because it is more work.. When your accountant is in a hurry they might miss mistakes or inconsistencies. They might not have time to ask questions or clarify things, which can lead to decisions. If you do your bookkeeping your accountant can actually help you instead of just processing data in a hurry.

 

 Making Decisions Without Knowing What is Going On

Throughout the year business owners make decisions. Like hiring someone taking out a loan or starting a new product line. These decisions are better when you have current financial information. If your books are ten months out of date you are basically. Hoping for the best. This is not a hypothetical problem. Businesses take on debt they cannot afford because they did not realize how thin their margins were. They hire people before they have the money to pay them because they were using sales figures instead of current ones.

 

 The Audit and Loan Application Rush

If you ever need a loan or a credit line or if you have to go through an audit you will need to show your statements.. These statements need to be accurate and up-to-date. Businesses that only do their bookkeeping at the end of the year often struggle with this because they have to put financial statements in a hurry. This can delay loan approvals. Make it harder to negotiate with lenders.

 

 What Regular Bookkeeping Actually Looks Like

The good news is that you do not need a system to do your bookkeeping regularly. You just need to be consistent.

• Write down your sales and expenses every week or at every month.
• Check your bank statements every month to make sure everything is correct.
• File your GST returns and TDS on time using numbers instead of estimates.
• Look at a profit and loss summary every month just to catch any mistakes.
• Keep paper copies of your invoices and receipts and file them as you get them.
• Talk to your accountant not just at the end of the year so you can plan your taxes.

None of this has to take a lot of time if you make it a habit. Spending an hour or two a month on your bookkeeping is much better than the rush at the end of the year.

 

Final Thoughts

 

Only doing bookkeeping at the end of the year might seem like it saves time and effort. It actually just puts off the cost. This cost shows up as missed tax planning, compliance risks, higher fees and bad decisions. It is not dramatic, on its own. It adds up. If you start doing your bookkeeping even if it is just a little bit it can make a big difference. It is one of those changes that you do not realize you need until you try it. Then you wonder how you did things the old way. If your bookkeeping is behind and you are starting to feel the stress of the end-of-year rush it might be time to talk about setting up a system.