5 Reasons to Keep Accounting Current

Accounting is one of those areas that can get put on the back burner. That can be a very serious mistake. This posting is highly relevant to start-ups, but applies more to some small businesses that have existed for a long time than you might imagine. Although there are certainly more than five reasons to keep accounting current, here are five that I believe are critical.

Legal Obligations

You will undoubtedly need correct financial information to have tax returns prepared. This might typically be thought of as income taxes, but it is more. Try to prepare a property tax or sales tax return without current accounting records, and you will see just how difficult it can be. The accounting records, along with supporting schedules, are the source for the information required, no matter what kind of tax return is being filed. Can you imagine the difficulty of going through an IRS audit without good and current accounting records?

Products and Customers

What products or services contribute most to your business? What customers contribute the most to your success? Accounting records that are current and a system designed to capture the needed information can tell you not only who your biggest customers are and what products or services sell the best, they also can tell you how profitable they are. They can tell you which customers are consistently past due in paying. Using the information provided by good and current accounting records will help you decide what products and services to emphasize, when prices may need changing, which customers represent the best opportunity for more business, and which customers you may need to consider not serving. Yes, we all hate to lose a customer, but if they always pay extremely slowly and take up a disproportionate amount of your time and effort perhaps they may not be the kind of customer you want.

Capital Requirements

If you want the ability to make reasonable estimates of capital requirements then your accounting records need to be current. Using your current financial position, coupled with forecasted sales and expenses, you can make judgments as to whether you will generate sufficient cash internally or if you need to obtain outside financing. This can help you avoid those painful situations of being put on hold by a vendor and being unable to purchase what you need to service you own customers. Just as important, you want to be certain you will be able to meet your obligations for payroll and related taxes. To not remit payroll taxes on time is a failure of fiduciary responsibility that can result in significant fines and even personal responsibility for those with control over who gets paid. And, not paying your employees – let’s not even go there.

Where Are You versus Plans?

Most business owners and key managers have some idea of what they hope to accomplish. Without current accounting records you will not know where you are in relationship to plans. It really is attempting to manage blindly and leaves you unable to make the changes needed to get back on track.

Peace of Mind

You probably remember being in school and having a sense of dread and fear about a test the next day. It was a fear of the unknown. That same dread and fear will surround you as well if you don’t have a clear picture of your business’s current financial situation.

I could go on, but these 5 reasons are a good starting point for why you should make every effort to keep accounting current. How about your company? Do you have current and adequate accounting records? This doesn’t have to be brain surgery or rocket science as you can see in a previous posting, Simplified Management Accounting.  Do you need to consider a Part-time CFO to help you establish a good accounting system, help to keep it current, and explain the information it provides? AimCFO can help.

You can learn more at AimCFO – Contact

As always, your comments are welcomed.

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