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. Analyzing 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.
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.
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 investigation 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.
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 CPA. Small businesses embrace online tools for their lower dollar cost, but without bookkeeping 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.
So try going the middle route. There are many qualified non-cpa bookkeeping firm 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. You may want to have your tax professional or a qualified CPA refer you to someone who can help you or analyze their preliminary work to determine if they are handling your books accurately and completely.
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