Whether you’re doing your own bookkeeping or having Bench handle it for you, here are six useful things you can do with up-to-date books.
You can manage expenses
Every time you incur a business expense, it needs to be accounted for. Maybe the expense is paperclips for your office. Maybe it’s a tank full of diesel for the tractor on your organic farm. Big or small, it needs to be entered in your books.
Typically, expenses are recorded in the general ledger. When they’re not—due to bookkeeping that’s lagging behind—you can run into trouble.
Take the tractor example. Let’s say you spend $80 on fuel on Friday. On Saturday, at the farmer’s market, you sell $300 worth of fresh kale.
The $300 goes into your bank account, and you figure you’re up $300 for the week. That’s fine—until you go to pull out $300 for a tractor payment, and find you only have $220.
Up-to-date bookkeeping means knowing how much you’ve spent, and how much you’ve earned. That’s important information for the day-to-day operations of your business.
You can stick to a business budget
Staying on top of your expenses is great. Making a plan for every dollar you earn next year is even better.
But you can’t make a budget without having a realistic idea of what you spent last year. That’s your baseline. Then, you plot out what you *hope *to spend this year.
Here’s where most budgets fail: they don’t get updated each month with real spending numbers. When you do regular bookkeeping, you can see where you’re tracking against your budget plan, and you can make changes on-the-fly as you need.
Say you planned to cut back on Facebook advertising to only $300/month, so you could start saving $150/month towards an expensive industrial screen printer. But you realize you have some inventory you need to get rid of ASAP, so you put $450 into your next Facebook promo.
Now, with updated books (and an updated budget) you can see the printer will have to wait another month. But at least you know exactly where every dollar is going, and how that affects your business.
Further reading: A How-To Guide for Creating a Small Business Budget
You can forecast revenue (this is useful, we promise)
Forecasting revenue is one of things that feels like an academic exercise. But there are certain times when you absolutely need an accurate forecast, and the best way to get an accurate forecast is by looking at your past financial statements.
For instance, if you’re making quarterly estimated tax payments, you’ll need to forecast revenue for the year, so you can estimate how much tax to pay.
Forecasting is also important month-to-month. Maybe it’s tourist season, and business is booming at your hamburger stand. It’s so busy, in fact, that you need to hire another high school kid to tend the grill.
How will you know you can afford to cover your another wage, unless you can anticipate the amount of money you’ll have coming into your business during the rest of the summer? Looking back over your books for the past few summers, you’ll be able to do the math, and add another spatula to your fleet.
You can skip the tax-season stress
When your books are up to date, you can glide into tax season—and the new year—with an easy mind.
Having all your business transactions recorded up to December 31 means you’ve got everything you need so an accountant can prepare your tax return for you. Come New Years’ Eve, you can worry about popping champagne, not prepping your taxes.
Reach the end of the year with out-of-date books, though, and you could find yourself scrambling. Getting a bookkeeper or accountant to do catch-up bookkeeping for you—or even hunkering down and doing it for yourself—costs money and time. Come New Year’s Eve, you could end up counting pennies instead of counting down til midnight.
Even if paying for a bookkeeping solution costs you money over the course of the year, that expense is at least partially offset by what you save in catch-up costs.
You can get a loan (or take on investors)
Let’s say your burger stand does really well during the summer tourist season, but you want to keep business moving during the rainy part of the year. A covered patio area could do the trick, encouraging people to come in out of the rain and get a bite.
You need money to hire a builder. But before the bank is willing to extend your line of credit, they want proof that your business is making money. (After all, they’d like it if you eventually paid off the money they’re letting you borrow.)
For that, you’ll need to present up-to-date financial statements.
The three key financial statements are the income statement, the balance sheet, and the cash flow statement. These three statements let you know, respectively, how much money you’re earning, how your expenses affect your revenue, and how money is moving throughout parts of your business.
(You can learn more about them with our introductory guide to financial statements for small business owners.)
An accountant can generate reliable financial records for you—so long as you provide them with up-to-date books. Then, a lender can use your financial statements to figure out whether or not your business is healthy, and whether they should lend you money.
You can prepare for emergencies
When you run your own business, it’s smart to expected the unexpected. But sometimes, Murphy’s Law gets the upper hand.
A swarm of aphids takes out your kale crop, or a burger grill suddenly decides to give up the ghost. When you’re facing a sudden spike in expenses—or a decline in revenue—you need to be able to make up the difference. That could mean drawing on backup reserves.
An emergency fund can help absorb the impact of unforeseen costs. Just by putting away a fraction of your business income every month, you may be surprised to see how quickly your savings add up. But it’s nearly impossible to save for emergencies when your bookkeeping is out of date.
Current books tell you how much you’ve saved. They’ll also let you know when you can start withholding more from your income, or when you need to divert some of that emergency fund savings to cover more immediate costs.