Monthly vs. Yearly Accounting: What’s best for your business?
7 minute read
Accounting is important in all businesses, but it is sometimes overlooked by small business owners as they juggle all of the other obligations of managing and sustaining day-to-day operations. Needless to say, accounting should never be overlooked.
It is crucial to maintain balanced records in order to forecast your finances months in advance. Good records will also warn you of any financial shortfalls. If your company faces an unforeseen crisis, having the appropriate accounting information immediately on hand could possibly save your organization.
So, would it be more beneficial to do your books on a monthly or yearly basis? What are the advantages of both, and which option will work best for your company? Take a look at the guide below to find out.
Setting up your accounting correctly
The very first step to efficient accounting is to sort out your chart of accounts. This contains the list of recognized financial accounts that is in your business’ general ledger. Company bookkeepers manage the financial records through the chart of accounts, which includes data that accountants need to easily evaluate the company’s financial performance.
As shown in the below example, the chart of accounts captures a company’s revenue, expenditures, assets, and liabilities and divides them using account codes.
|Account category||Ledger account||Account name|
|149||Work in progress|
|339||Incoming goods without receipt|
|Expense||510||Consumption raw materials|
|980||Opening balance sheet|
|985||Closing balance sheet|
Best practices for accounting
Now that you know how to set up your chart of accounts, it’s time to deep dive into effective accounting practices that will keep your finances healthy.
If you have little experience when it comes to accounting, you should definitely seek expert guidance. Many businesses attempt to save money by preparing their own taxes. This may seem like a great short term solution for the cash-strapped entrepreneur, but in reality, refusing to leverage a tax professional’s accounting experience might cost your company a lot of money in the long run.
It’s possible that you’ll miss out on a deduction or underpay your bill, which usually results in fines. On the other hand, when you pay a professional, you can rest assured that they know what to look for and will employ accounting techniques to put you in the best financial position possible.
A service like Sleek, for example, will be up to date on the ever-changing tax regulations and can prepare for potential tax increases in the near future. On top of that, you would technically be outsourcing your whole accounting department, which means that you can save all the money and time it would take to hire a team of in-house employees. Not to mention, our platform provides you with many more services than just accounting.
Set up the workflow for invoicing and recording receipts
If you already have an accountant and would like to maximize their processes, you can set up the workflow for invoicing clients and recording receipts with cloud-based accounting software.
Your business likely sends out invoices and creates receivables constantly. You can quickly see if your customers have an outstanding balance by looking at this list. When a customer pays you, you should apply the payment to their invoice and mark it as paid.
However, when keeping up with a large number of orders, customer deposits are frequently left to be reconciled later. You may find yourself with a lot of client deposits in your revenue account and receivables that don’t match when tax time comes around.
It’s critical that you keep track of your transactions as they occur, or you could waste hours updating your listing, overpay on your tax return, and end up with a lot of debt.
Luckily, there is software like Xero, Dext, and even Sleek that can help with that. These cloud-based accounting platforms offer tools for managing invoicing, bank reconciliation, inventory, purchasing, expenses, and so on. You will be able to easily collect, categorize, and transfer your invoices, expense reports, and bank statements to your accountant.
Monthly accounting vs. yearly accounting
Let’s take a look at the benefits and shortcomings of monthly and yearly accounting. This will help you determine what option best suits your company and its specific needs.
Businesses that report monthly give themselves a valuable opportunity to spot signals in their operations and respond immediately. With monthly reports available, you can easily answer any of these questions:
- Why have cash receipts decreased in the current month compared to the previous month?
- What happens if a key customer limits orders due to dissatisfaction with services?
- When a supplier raises pricing, will you notice before it’s too late to switch to a new source?
When reporting monthly, you also have the ability to observe seasonality in your business and see whether the time of year is affecting you differently now than in previous months or years.
A monthly set of accounts makes comparing costs month to month, and against expectations, a breeze. Savings can often be realized by digging deeper into costs and understanding where you can cut spendings. And the more often you do it, the better.
Although annual financial reporting seems less demanding and less expensive, the risk of withholding potentially negative news is too big for most businesses. If you do your accounting yearly, you may not be able to catch any unwanted or unauthorized transactions by your workers, vendors, or others involved in account administration.
With all this considered, it’s clear that if you want to keep a firm grip on your business and immediately see problems and possibilities, you should generate detailed monthly financial statements.
With the monthly accounts reconciliation procedure, catching accounting mistakes becomes simple. This provides you with a clearer perspective of your accounts book.
The table below clearly shows the advantages of monthly accounting and why you, as a modern business owner, should choose it over yearly accounting.
|Monthly accounting||Yearly accounting|
|Helps spot errors right away||Can’t discover errors until year end – you must hunt for old, missing receipts and document|
|Secures business deposits||You may see an amount deposited later, so it doesn’t allow you to react timely|
|Ensures you make your monthly payments||Higher chances of missing payments|
|Helps save money||No chance to spot tax deductions or extra fees|
|Saves workload and helps accountants manage documents||Less short term work, but less efficient in the long run|
How Sleek can help
Sleek has a team of professionals with extensive experience in the finance industry that will help you keep your accounting needs satisfied. Our qualified experts will have no trouble keeping your books tidy from month to month.
With Sleek, you have the peace of mind to run your business while our accountants and bookkeepers take care of your finances, tax obligations, and even payroll. Every service we offer is efficient and transparent.
Take a look at our accounting services to find a pricing plan that fits your budget.
As outlined above, there are numerous disadvantages of implementing yearly accounting. Bookkeeping errors and missed payments, to name a few, will have a negative impact on your accounting process and cost you more than just money in the long run. That’s why monthly accounting is the way to go to ensure a successful, thriving business.
Are you ready to properly manage your accounting process? There’s no better time than now to start! If you want to outsource your accounting don’t hesitate to request more information from real experts – get in touch with Sleek.
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