Provided by Bonnie Lee of Fox Business: Small Business Center
When you own a small business, it is imperative that you keep a good set of books that are consistently and contemporaneously updated. The tax man will not be satisfied with records that were thrown together at the end of a year.
Tax preparation is a key reason to maintain a detailed set of books, but there are other factors at play. It’s important to know how much money your business is bringing in along with how and where the money is being spent. Compare your results to industry standards to determine where you need to improve your business model. You should also compare this year’s sales and expenses to the prior year(s) to note your progress in the business world. Reviewing this year’s balance sheet accounts (cash, receivables, liabilities, etc.) to prior years will also help establish profit and sales goals.
Another reason to have current financial statements is to satisfy a lender who will certainly require them in order to evaluate your qualification for a business loan.
This means that your business needs to employ software more sophisticated than a simple spreadsheet format in order to obtain current as well as comparative data. My software will pull up 10 years of profit and loss statements side by side in one report so that I can compare key elements whenever I need it.
Most successful people will agree that “Bookkeeping is a painful and expensive part of operating a business.” According to a June 2012 article published by AccountingToday.com, out of 30 million small businesses in the US, 74 percent do NOT employ full-time or part-time accounting help. Consequently, owners are attempting to figure this out on their own, taking away valuable time from running their business.
Going at it alone might save money at first, but you could end up landing in more trouble. Tasks such as posting payroll properly, tracking credit card usage and reconciling accounts can be tricky. Just knowing which account to post a particular transaction isn’t always clear.
Throwing data into QuickBooks without knowing the key elements of the bookkeeping process can create some disastrous results. And those results may adversely affect your tax return. Not only that, but a subsequent IRS audit may result in additional tax liabilities as well as open up other years for examination.
Experts will tell you to seek out professional help in all areas of your business in which you are not competent.
Small business owners have had three options when it comes to business bookkeeping: handle themselves, utilize online bookkeeping programs or outsource to a CPA. Small businesses embrace online tools for their lower dollar cost, but without accounting expertise; spend valuable time trying to figure out tasks in desperate need of a human being for guidance. CPAs, on the other hand, are expensive and localized.”
So try going the middle route. There are many qualified bookkeeping services that don’t charge as much as a CPA but can deliver exactly what you need. The trick is to be sure the person or agency you engage knows what they are doing.
Fawn Choate, owns a bookkeeping company based in Boston’s North Shore. She specializes in providing Accounting services and working with companies that want to outsource their bookkeeping. She can be reached at firstname.lastname@example.org or in person at 16 Anderson Street in Marblehead, MA.