This article explains the 1st reason why it is beneficial to prepare for year-end accounting throughout the year, which includes saving costs by having a bookkeeper use proper software throughout the year rather than having an accountant do the bookkeeping come year-end.
The fiscal year-end can be a very stressful and dreaded time of year for business owners. For some, year-end means working in tandem with their bookkeeper and scrambling to get everything together that the accountant may need. For others, this time of year may not cause any stress as they have shoved everything away in a shoe box to be forgotten and out of sight until handled by an accountant at the end of the fiscal year – which most accountants LOVE (wink wink). So, how can we handle fiscal year-end in a way that will have the business owner and the accountant in the least taxing position? The best way to avoid the stress, and to stay on top of financials year-round, is by preparing for year-end throughout the year!
Preparing throughout the fiscal year means communicating with the accountant more than once during the year, whether that be monthly or quarterly, in order to stay on top of the important financial records and bookkeeping tasks. Preparing accounting throughout the year can result in many benefits for your business, and in this article, we will take a deeper look into the 1st benefit of preparing for year-end accounting throughout the year: Cost Savings!
This is likely one of the most appealing benefits of organizing accounting records throughout the year. While the next two benefits in this article series also include cost saving opportunities, this article focuses on the cost savings that can be experienced from having a bookkeeper use proper software throughout the year rather than relying on an accountant to complete all the bookkeeping requirements come year-end.
To showcase the two different scenarios, including cost differences, we have prepared a comparison of two different situations for a small business. Keep in mind that if this is the scenario for a small business, these projections will be amplified in a larger business depending on their sales and business activities which increase the amount of financial information to be recorded and reconciled. More records and information mean more time spent on entering and reconciling those records.
Scenario A is a small business that has used bookkeeping software throughout the year with a part-time bookkeeper entering the information. Scenario B is a small business that does not complete any bookkeeping throughout the year and instead waits until year-end for their accountant to enter all of their financial information.
It is important to note that while we did a direct comparison of the same timing for a bookkeeper to prepare the records throughout the year as an accountant. Although the same total hours may not be required, there would be a substantial increase in the time it would take an Accountant to complete year end without the organized and updated info from the bookkeeper. The additional required time would affect both the accountant and the owner as information would need to be communicated back and forth. For some accountants there is also a charge for their time when communicating back and forth. A cost although less spread out would add up quickly for the year end going with just an accountant.
If you are interested in learning more about the differences between accounting and bookkeeping roles, see our article Accounting vs. Bookkeeping – What’s the Difference?
How Taxing is Our Year-End?
After reading the above comparison we can see there is quite a difference in preparing bookkeeping throughout the year instead of waiting until year-end. While some accounting firms also have the option of having a bookkeeper complete the yearly bookkeeping requirements, it is important to note that this will still take the bookkeeper longer to complete at the end of the year as they will need to look back into records and financial information that has not been reconciled yet. When looking back at previous year-ends for the business, or if this is the first for a new business, it is great to consider “what scenario will be the least mentally taxing and most cost friendly for us come year-end?”
Next up in this series on the benefits of preparing for year-end accounting throughout the year is Part 2: Avoid Government Penalties.