Still deciding
Monthly bookkeeping or once a year at tax time?
Doing the books once a year produces a tax return. It does not produce anything you can run a business on, and the difference has a price that never appears on an invoice.
Reviewed by Darren Lim, US CPALicence CPA.742536027 min read
A lot of contractors have an arrangement that looks like bookkeeping and is actually tax preparation. Everything goes in a box, the box goes to someone in February, a return comes back in April.
It is cheaper on the invoice. Whether it is cheaper is a different question.
What annual bookkeeping actually produces
One thing: a tax return that is defensible.
That is not nothing — it is a legal requirement and it has to be right. But look at what it does not produce:
- Any number you saw in time to act on
- Any idea which work was profitable
- Any warning that margin was slipping
- Any receivables ageing while the money was still collectable
- Anything a lender would accept without a lot of extra work
The return is a rear-view mirror built for someone else's purposes. It is optimised to satisfy a filing obligation, not to run a business, and those two goals genuinely pull in different directions.
The four costs that never appear on the invoice
Decisions made blind. Twelve months of hiring, pricing, quoting and buying, all made on instinct because the numbers arrive after the year they describe. This is the largest cost and it is completely invisible, because you never see the version where you had the information.
Reconstruction is worse than recording. Nobody remembers what a $340 supply house charge in April was for. In April, somebody did. Categorisation done eleven months late is genuinely less accurate — not slower, less accurate — and the errors go in whichever direction is easiest to justify.
You pay professional rates for data entry. Cleanup done by a CPA firm in their busiest eight weeks is the most expensive bookkeeping available. Contractors who feel their accountant is expensive are usually not paying for tax expertise; they are paying it for reconciliation.
Problems run for a year. A payroll liability that stopped clearing in March is found in February. A customer who stopped paying in May is chased in the following spring, by which point it may not be collectable. A margin slip that started in Q1 runs all year. Monthly close does not prevent those; it shortens them from twelve months to one.
When once a year is genuinely enough
Not a rhetorical concession — this is real for some businesses:
- A single operator with simple money and no employees or subs
- A dormant or nearly dormant entity
- A side business that is not making decisions worth informing
- Genuinely predictable work with one customer type, one price and stable costs
If that is you, monthly close is buying you information you would not use, and the annual arrangement is the right economic answer. Do not let anyone tell you otherwise.
The moment it stops being right is the moment you start making decisions that depend on the numbers — a hire, a truck, a price change, a job bigger than anything you have done.
What monthly close actually means
Worth defining, because "monthly bookkeeping" is sold to mean several different things and only one of them is worth paying for.
A real monthly close is:
- Every account reconciled to the statement, with the report kept
- Everything categorised, by someone who knows a contractor's chart of accounts
- Payroll tied to the filings, liabilities cleared
- Period-end adjustments — accruals, prepayments, depreciation, loan splits
- A P&L and a balance sheet that tie
- Receivables and payables aged
- Someone telling you in plain English what changed and why
If what you get monthly is a P&L and nothing else, that is a report, not a close. The reconciliation is the part that makes the P&L mean anything, and it is the first thing to ask for.
Point seven is the one most firms leave out and the one that changes behaviour. A number nobody explains is a number nobody uses.
The quarterly middle ground
Quarterly close exists and is a reasonable compromise for a smaller contractor: you get four checkpoints instead of one, catch problems within ninety days instead of a year, and it costs less than monthly.
Where it falls down is payroll and sales tax, which run on their own calendars and do not wait for a quarterly review. If you have employees, those need monthly attention regardless of how often the full close happens.
How to test the difference on your own numbers
Do not take the argument on faith. Take last month, close it properly, and ask two questions:
- Does anything in it surprise you? For most contractors doing this for the first time, at least one thing does — usually a category of work that is not making what they assumed, or a receivable they had forgotten.
- Would you have done anything differently if you had seen this three weeks after the month ended, every month, for the past year?
If the answer to the second one is no, the annual arrangement is fine and you have just saved yourself a monthly fee. If it is yes, you now have a number for what the current arrangement costs.
Related
How we do this
We build this into your books. Starting with a month that costs you nothing.
The month closes while the people who were there can still remember what a transaction was, and you get a P&L, a balance sheet and one page in plain English while there is still time to act on it.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — licence CPA.74253602
- The Two-Day Guarantee: Your first month back in two days, or the next month is free.
A year of decisions made without numbers costs more than any bookkeeping arrangement. The way to see the difference is to hold one properly closed month next to what you get now — and the first one is free.