Should Business Owners Keep Monthly Books?
The Benefits of Business Owners Doing Monthly Accounting.
The primary purpose of accounting is to report businesses performance and financial transactions on a timely basis. Arguably, financial statements are the most important tool for an organization’s success.
However, it is often a question among business owners about how often reporting should be done. Businesses usually choose to report either annually with their tax return, quarterly, or monthly. There are plenty of benefits to any choice. However, reporting monthly has its own unique benefits that could be advantageous to some small business owners.
The following will go over the benefits of monthly accounting and why your small business should consider it.
1. Manage Your Business Tightly
One reason that monthly reporting is beneficial is that it helps business owners maintain an accurate record of the financial activities and keep them up to date. Using a software platform such as QuickBooks can immensely help in reporting incoming revenue and outgoing expenses.
Keeping track of the assets, liabilities, income, and cash flow in a timely manner allows for business owners to manage their business tightly. This is because the monthly records allow for an organized approach that business owners can use to easily review past transactions and records when needed. This will aid business owners to make informed decisions.
2. Accessing Financial Performance
Another great benefit of monthly reporting financial statements is that it reflects the financial performance and condition of the business during each month. The financial reports will identify and measure key performance indicators to help business owners understand how well the business is doing. As well, those who report monthly are allowing themselves to identify weaknesses or issues in their business, therefore, owners can react quickly.
3. Track Seasonality
Another great upside of performing monthly accounting practices is that owners can track seasonality trends. Seasonality in a business refers to predictable changes in sales that occur during the year. Monthly accounting gives insights into which months are impacted by seasonality. It is important to understand your business's seasonality trends as it can help determine certain business decisions such as inventories and staffing. These decisions can therefore help businesses reduce costs and increase revenue.
Although it may sound like a financial burden and time-consuming to keep up-to-date monthly accounting records, it really isn’t in the long run. In fact, going longer than a month to update your financial records could lead to costly mistakes. Putting off your accounting could lead to higher chances of error as there is much more data that needs to be updated at once. These delays in record keeping can have devastating consequences for your businesses and end up taking more time than just quickly recording at the end of each month.
5. Tracks Cash Flow
Another benefit of monthly accounting is the ability for owners to track cash flow. Owners should always know the amount of cash that the business has at a given time. Therefore, recording monthly allows for easy access to the information. This is a great way for owners to make more informed decisions that are based on their current cash standings.
6. Comparison to Budget and Forecast
At the beginning of the fiscal year, business owners should be forecasting their monthly expenses and revenues. These forecasts will help business owners understand their growth expectancy and performance. Monthly accounting will help owners to compare their expectations of the forecasts to reality. This information can provide visuals for owners to see if the accounts coincide with the forecasts. As well, it will aid owners to understand the specific causes if there are variances.
7. Factor of Motivation
Having updated monthly reports can give the insights necessary to help business owners focus and gain motivation. The monthly accounts that show your financial condition will essentially give meaning to certain activities such as reducing costs or increasing sales. Monthly updates will frequently give insights into exactly what needs to be done to promote growth. Not to mention, both owners and staff members can gain motivation by viewing monthly accounts, so it is beneficial information for numerous people at an organization.
Overall, the key to any growing business is to compile and review financial statements regularly. It will help owners discover potential inefficiencies within the business. Sound business decisions depend on timely and accurate data so, if accounting isn’t a strong suit of yours as a business owner, hiring a CPA contractor could be the best way to stay on top of your monthly reports.