When you own a small business, it is imperative that you keep a good set of books that are consistently and concurrently 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. There are software that can pull up 10 years of profit and loss statements side by side in one report so that you can compare key elements whenever you need it.
For me it’s a given that every serious business owner follows these rules. But most small business owners do not take this serious, that is why it is not surprising when experts make the following claim: “Bookkeeping is a painful and expensive part of operating a business. And while there are more than 30 million small businesses in the US, 74 percent do NOT employ full-time or part-time accounting help according to a June 2012 article published by AccountingToday.com. Consequently, many small business owners are attempting to figure this out on their own without the necessary background, taking away valuable time from running their business.”
Going at it alone might save money at first, but if you aren’t qualified to do the work, 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.
I must admit that I have seen my share of inaccurate books over the years. 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 tax 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.
Expert say, “In the past, small business owners have had three options when it comes to business bookkeeping: handle themselves, utilize online bookkeeping programs or outsource to a Chartered Accountant. 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. Most small business owners and managers always believe Chartered Accountants, on the other hand, are expensive and localized.”
So try going the middle route by outsourcing your bookkeeping. There are many qualified bookkeeping services that don’t charge expensively but can deliver exactly what you need. The trick is to be sure the person or agency you engage knows what they are doing.
Whether in a recession or boom, you cannot afford not to have a proper bookkeeping of your small business because what ‘get recorded, get measured and get controlled’