Recession Survival Guide: Now is the Time to Clean Up Your Books

When you’re feeling worried and stressed about the possibility of a recession rolling in, you might not be in the mood to tackle the tedious task of cleaning up the company books. But when hard times hit, it is more imperative than ever to get your financial records into solid shape.

Untidy books will lead you to make decisions using guesswork and gut instinct rather than relying on definitive information. When guesstimates are the basis of decision-making in a recession environment, the negative impact of a bad decision is amplified.

Many small business owners will readily admit they don’t keep their business records as organized and updated as they should. SCORE, a national volunteer network of business mentors that helps entrepreneurs launch and grow their businesses, polled small business owners and found that 40% of them considered bookkeeping and taxes as the worst part of owning a business. SCORE is a resource offered by the US Small Business Administration (SBA).

Entrepreneurs’ dislike of bookkeeping is not surprising. Piles of paperwork consume time, while a complicated tax code and ever-changing regulations can cause confusion. For business owners who would rather focus their efforts on serving customers, improving products and services, and growing sales, getting the books into tiptop shape can seem like a nuisance.

Mistakes Can Add Up

While it’s tempting to view precise recordkeeping as annoying drudgery, this exercise will be easier to bear if you shift your perspective. Think of it as an important opportunity to understand your business better. And when you have a more comprehensive understanding of where the money is coming from and where it’s going, you can identify weak spots and create a strategic plan for growth. More growth potentially means more money in your pocket.

Being sloppy with your records can also cause you to make mistakes, which can mean missed opportunities to receive tax deductions or credits, plus you risk penalties for inaccurate filings. These are additional and unnecessary costs you can’t afford to shoulder in challenging economic circumstances. Staying on top of your financial data will help you spot data entry errors, omissions, and duplicate transactions. If you aren’t doing this already, separate your personal and business finances, such as setting up separate bank accounts and credit cards, to help you keep your books clean and accurate.

If you’re still relying on spreadsheets to keep track of your company’s finances, it would be worth researching options for accounting software. These software products have advanced dramatically in recent years. They are inexpensive, easy to use, and can save significant time by allowing you to import credit card and bank transactions directly into the program. They can also generate profit and loss statements and balance sheets at the touch of the button.

Taking action to clean up your books might be more time-sensitive than you expect. If your revenues decrease because of the economy’s contraction, you might need to apply for loans to carry you through the lean times. You don’t want to be left scrambling to pull together your numbers and reports at the last minute under stressful circumstances. Get everything in order now and you will be ready to approach banks or investors when you need funding.

Consider a Bookkeeper

If your books are in bad shape and you really don’t have the time or the patience to clean them up, hiring a bookkeeper is a great option. Experienced bookkeepers know how to organize your finances into categories that makes it easy to track trends in both income and expenses. Tracking trends gives you greater clarity with what’s happening with your business, which in turn allows better decision making.  It also makes paying taxes much easier because you can log your expenses using categories that match applicable tax write-offs.  When tax time comes, all the information then transfers easily to your form 1040.

Most entrepreneurs think they can’t afford a bookkeeper, but you can find good ones for under $35/hr and it doesn’t usually take them much time to log income and expenses once the initial job of cleaning and organizing your books is done.  Excellent bookkeepers are worth their weight in gold because they allow you to focus on what you do best while they keep your books clean and accurate.