As a small business owner myself, I know firsthand how tempting it can be to let bookkeeping slide to the bottom of the priority list. There’s so much to do just to keep your business up and running, let alone stay on top of recording and tracking every single transaction. Many entrepreneurs, including myself in the early days, choose to outsource bookkeeping to an accountant or bookkeeper on a quarterly basis just to get it off their plates. But let me tell you, while quarterly bookkeeping might seem more efficient, there are some major downsides to only looking at your finances four times a year. 

After almost losing my business because I waited too long between bookkeeping sessions, I quickly realized the power of monthly bookkeeping. Keeping your books updated every month gives you access to way more accurate and timely financial information to make smart decisions and spot potential issues before they become crises. 

In this post, I want to have an open discussion about the disadvantages of quarterly bookkeeping compared to monthly. I’ll share from my own experience how making the switch to monthly bookkeeping greatly benefited my business. And I’ll give you tips on how to transition if you currently only work with your accountant or bookkeeper quarterly. By the end, you’ll have a good understanding of why monthly bookkeeping is so critical for small business success.

The Downsides of Quarterly Bookkeeping

I used to think checking in with my bookkeeper only four times a year was sufficient. It saved me time and money. Quarterly check-ins on my finances seemed like plenty to keep things running smoothly. Boy, was I wrong! Here are some major issues I ran into that could have been easily avoided with monthly bookkeeping:

It’s Harder to Spot Errors and Fraud

About a year into business, I discovered one of my employees had been slowly embezzling money from the company over several months. Small amounts of cash were taken here and there, thinking I wouldn’t notice. Because I only had the books checked quarterly, the fraudulent transactions easily slipped under the radar. By the time we uncovered the theft, several thousand dollars were missing.

Having monthly bookkeeping would have allowed me to identify the questionable transactions right away before things got out of hand. The shorter the time period between reviews of your finances, the easier it is to catch any errors or fraud. 

You Don’t Have a Clear Picture of Cash Flow

I never had a good handle on my cash flow position or upcoming expenses when relying on quarterly bookkeeping. I thought the business was solidly profitable, only to later find out that once I factored in taxes, overhead, payroll, etc., we were just breaking even. 

Not having a frequent updated understanding of your cash flow is like flying a plane blind. You have no visibility into whether you have enough cash to cover costs, let alone whether you might need to scale back spending. I learned this lesson the hard way when I almost couldn’t make payroll because I didn’t properly budget for our busiest season.

Tax Payments Become Stressful

Preparing and filing taxes when you only look at your finances four times a year is incredibly stressful! I used to dread getting all of my expense receipts and invoices organized for my accountant every year. Inevitably there would be missing documents or numbers that didn’t add up right that had to be explained or backfilled.

With monthly bookkeeping, you and your accountant stay on top of deductions, estimated payments, and everything else all year long. No more last minute fire drill trying to get your books in order before tax time!

It’s Harder to Make Sound Business Decisions 

As a business owner, you have to make a lot of big financial decisions throughout the year – hiring new employees, purchasing equipment, expanding to a new location, etc. Doing this with limited visibility into your books and finances is basically just guessing. 

Because of my quarterly bookkeeping schedule, I didn’t have the accurate, up-to-date insight I needed to confidently make these big calls. In hindsight, there were definitely some poor financial decisions I could have avoided if I had adopted monthly bookkeeping from the start.

The Benefits of Switching to Monthly Bookkeeping

After one too many bookkeeping blunders that almost tanked my business, I finally wised up and made the switch to monthly. While it did require more time and money upfront, the benefits for my business were tremendous:

More Accurate Financial Statements

One of the biggest advantages of keeping your books updated monthly is having real-time, trustworthy financial statements. I can now pull a profit and loss statement or balance sheet any time and know it reflects the true current state of my business.

With quarterly bookkeeping, your accountant has to work with limited, incomplete data which creates inaccurate financial reports. I no longer have to wonder if my numbers are right or not!

Better Insight into Cash Flow

Since I implemented monthly bookkeeping, I have total clarity on my cash flow at all times. I can accurately predict upcoming high-expense months and see trends over time. This allows me to properly budget, control costs, and ensure sufficient cash reserves.

By reviewing the books every month, I stay on top of which vendors and expenses impact my cash the most. The visibility I have now compared to quarterly bookkeeping is night and day – no more stressing about making payroll!

Easier Tax Preparation

Tax season used to be a total headache. Now with monthly bookkeeping, my accountant helps make sure I’m maximizing deductions and avoiding any tax pitfalls throughout the year. 

When you only look at your finances quarterly, you and your accountant are constantly playing catch-up come tax time. With monthly bookkeeping, everything stays organized and up to date, which makes filing super smooth. The extra expense is more than worth the amount I save in accounting fees and potential audit costs.

Improved Decision Making

Thanks to having timely, accurate financial data at my fingertips, I’m now able to confidently make smart decisions on costs, hiring, growth plans, taking on debt, and more. 

Quarterly bookkeeping just didn’t give me the visibility I needed to properly analyze ROI, interpret trends, and gauge if the business could support major investments and expenses. Now I understand exactly where we stand financially before making any big moves. My business is performing much better as a result.

How to Make the Switch from Quarterly to Monthly Bookkeeping

If you currently only work with an accountant or bookkeeper quarterly, here are my tips on how to transition to monthly based on what worked well for my business:

Hire an Accountant or Bookkeeper

If you don’t already have one, the first step is hiring a bookkeeping professional. I’d recommend looking for someone local who specializes in businesses like yours. Explain your need for monthly services. 

Make sure to agree upfront on what monthly tasks you want them to handle – financial statements, payroll, tax payments, bank reconciliation, etc. My bookkeeper has been with me for years and has been instrumental in catching errors early. 

Use Accounting Software 

Game changer – using small business accounting software makes monthly bookkeeping so much smoother. I use QuickBooks Online, which lets my bookkeeper and I access everything remotely. 

The best software also seamlessly syncs with your business bank accounts. This automates transaction categorization and reconciliation to save tons of time. Just do your research to find the right solution for your needs.

Create a Bookkeeping Schedule

Consistency is crucial for timely monthly bookkeeping. Sit down with your accountant or bookkeeper and create a schedule outlining deadlines for completing key tasks each month.

I have set dates for reviewing financial statements, processing payroll, sales tax filings, etc. Putting deadlines on the calendar keeps us accountable and ensures nothing slips through the cracks. 

FAQs About Monthly vs. Quarterly Bookkeeping

I know switching from quarterly to monthly bookkeeping can be a big change. Here are some common questions I had when making the shift:

How much more will monthly bookkeeping cost compared to quarterly?

It will definitely be more expensive – you’re paying for 4x as many sessions. But it’s worth it! Think of it as an investment in better financial visibility that will pay off down the road. Maybe start with key monthly tasks like financial statements and add more over time.

What if I can’t afford monthly services right now?

If cash is tight, even just having your accountant prepare monthly financial reports provides better insight vs. quarterly reporting. Gradually add back monthly services as your budget allows. 

When should I make the switch?

The beginning of your fiscal year is ideal, but you can start monthly bookkeeping at any time. Just be prepared for the initial cost to get your books fully up to date. 

Is monthly bookkeeping too time intensive for busy owners?

Today’s accounting software and remote access means you don’t have to spend significantly more time on bookkeeping. Your accountant handles most tasks independently. Just stay organized with sharing documents and answering occasional questions.

How do I ensure a smooth transition? 

Communication is key! Clearly outline your expectations and desired monthly tasks. Invest in bookkeeping software. Schedule regular check-ins to address any issues promptly. It may take a few months to get fully up to speed, so be patient.

Conclusion

As a small business owner who learned the hard way, I can’t stress enough the importance of keeping your books updated monthly vs. only quarterly. Even though monthly bookkeeping costs more upfront, the improved financial visibility and timely insights you gain are invaluable for catching errors, making sound decisions, and driving growth. 

With the right accountant, bookkeeping software, and consistent schedule, you can smoothly transition from quarterly to monthly. Trust me, you and your business will be so glad you did! Feel free to reach out if you have any other questions on implementing monthly bookkeeping. Here’s to error-free, stress-free finances!