If you are a small business owner then you have a lot on your plate. Keeping customers happy, managing employees, keeping your eye on the day-to-day operations in order to keep everything running properly is a lot of work. With everything that’s going on, it’s easy to lose sight of your bookkeeping duties and let things slide, but this is a mistake.
Keeping your financial records regularly updated and in order is one of the best ways to make sure that you’ll be able to provide a clean and comprehensive set of records at the end of the year, with no fear that they will appear to be thrown together and no worries about questions that you’ll be unable to answer due to the amount of time that has passed.
Keeping your accountant and the tax man happy at the end of the year is an important reason for making sure that your books are up to date, but there are other reasons too. The more accurate and current your bookkeeping, is the more valuable the information that it is able to provide to you about your business’ health, and where your money is going.
Being able to access your financial records quickly and with confidence provides you with the ability to compare how you’re doing to others in your field when industry standards are published – this allows you to assess whether you need to make any changes to your current business strategy.
It also provides you with information at a glance as to how your business is fearing as compared to those of previous years, and whether you are on target for the sales and profit goals that you have set for the current year. Having current records also makes the process of applying for a loan a piece of cake.
When you can easily and quickly hand over all of the financial statements that are requested in order to allow them time to analyze the stability of your business and whether a loan is a good business decision, it speeds the process along and offers a good impression of your professionalism.
Though bookkeeping is not the most enjoyable part of running a business, technology has made it much simpler and more straightforward then it once was. The introduction of modern accounting software has meant that business owners have a lot of choices as to how simple or complex their reporting will be. It also allows quick access to profit and loss statements over a ten-year period so that comparisons and forecasts can be done easily.
The availability of this software has made a world of difference for the estimated 30 million small businesses in the United States. According to a survey conducted by Palo Alto Software, at this point only about one third of small businesses are using the services of a bookkeeper and among those not using one now, about half say they have no plan to hire one in the future, opting instead for taking a do-it-yourself approach.
Though these business owners may feel confident in their own abilities and the strength of the tools that are available on the market today, they also leave themselves in a position of spending time and money to learn a new skill set, and that is taking away from time that could be spent in their area of existing expertise – operating their business.
Though there is a certain appeal to reducing expenses by keeping your books on your own, there are significant risks involved too. Unlike many mistakes that might simply result in lost profits or time, errors made in posting payroll, tracking expenses on a business credit card and keeping the books balanced are not only complex, but can result in trouble with the IRS later.
Many of my previous clients have come to me with their records entered into QuickBooks, thinking that they’ve done a good job but obviously having done so with no background in bookkeeping or understanding of what they’re doing. Some of these efforts and subsequent mistakes, though made in earnest, have resulted in bigger accounting bills for them in the long run as I’ve had to unwind the errors – and in some cases they’ve resulted in audits, penalties and additional tax liabilities. Worse, once you make this kind of mistake you are likely to come under closer IRS scrutiny in subsequent years.
As tempting as it may be to try to save money by keeping your books yourself, experts will suggest that you’re being penny wise and pound foolish. You are much better off having a professional handle any areas in which you do not have the appropriate expertise.
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