The costs of bad bookkeeping go far beyond the consequences of not understanding the impact of financial transactions. Maintaining a business record keeping and financial system isn’t something you should do solely as a tax-savings strategy; it can also prevent you from losing your sanity and getting dragged into a potential lawsuit over commingling your funds. Here are five significant reasons for maintaining a separate checkbook and set of books for each of your businesses:
The corporate veil: Maintaining a separate checkbook substantiates the corporate veil, one of the primary reasons for forming a new corporation. Segregating personal and business transactions shows you recognize the company is its own distinct entity. This furthermore encourages you not to commingle personal and business funds.
Tax savings: Daily accounting will improve bookkeeping procedures, prevent payments from being missed, and provide better records to improve your tax return.
Audit protection: Maintaining accurate financial transactions that are substantiated with supporting documentation reduce chances of a negative outcome in an IRS audit. The IRS will often disallow a number of expenses when personal and business expenses are commingled in a single set of books.
Reduce your stress: When your books are disorganized, you’ll feel constant stress to take care of it, and this ultimately can cause you to feel undone. Having separate checking and bookkeeping for a new company will save you time and money in the long run. There is nothing worse that not know your true cash balance, something your bank balance does not typically reflect.
Decisions based on performance: Accurate and timely bookkeeping, expense tracking, and budgeting leads to quality decision making. How can you expect to be a successful business owner without accurate records? The three elements a business owner should know at all time are book cash, accounts receivables and accounts payables. Knowing these three values allows management to understand the timing of cash flows; something imperative to running a business.
All the points above can be addressed by implementing an accounting for tracking income and expenses. It’s absolutely critical for small-business owners to at least consider QuickBooks as their primary accounting software system. Yes, there are a few alternatives to QuickBooks, but not many, and even fewer worth considering.
Unfortunately, we don’t live in a world where accounting systems can perform updates for themselves. The question comes down to having a plan on how to address this essential business need. Below are a few options to consider.
Option 1: Learn QuickBooks and input items yourself. I know this strikes fear in some of your hearts. In fact, this may be why your books currently aren’t getting done. But you still may want to hold off delegating any part of the process until you put in a few hours a week to learn the basics, like inputting figures. At the bare minimum, you need to be able to view and print reports and check the accuracy of the work. The biggest detractor of this option is not the accuracy issue; it is the time wasted performing a revenue negative task when you could be developing client relationships.
Option 2: Hire a family member to keep up the books. This is a great way to have the teenagers or young adults you’re supporting financially earn their keep and teach them about entrepreneurship in the process. They’ll learn about the heart and soul of small business by doing the books. Adding them to the payroll is also a great tax write-off. You will however most likely be sacrificing quality with this option
Option 3: Contract a local bookkeeper. This could be a local college student wanting or an experienced bookkeeper with affordable rates. It can free up your time so you can do what you know best: Make money for the business. This is also a natural step in the growth of a business before choosing the next option. Remember, this person will probably not prepare your taxes, perform significant planning for you or be able to advise you on business matters; they’ll simply maintain your books.
Option 4: Use your accountant or tax professional throughout the year. Many business owners like the comfort and security of knowing they not only have highly skilled accountants doing their books daily but the benefit of one-stop shopping for tax planning and quarterly and annual reports as well. It may seem more expensive, but the value of better long-term planning and a higher quality of books can far exceed the cost. More mature and seasoned business owners may naturally “graduate” to a more experienced bookkeeper when the time is right. At most firms, you can get an accounting support package tailored to your budget and needs.
Ultimately, the excitement and liberation of starting a business comes with a lot of responsibility. Thanks to technology, entrepreneurs can have affordable access to accounting professionals just as described in Option 5. These systems and web-based support services can be implemented to not only provide quality accounting, but also give the entrepreneur the ability to focus on the business vision, growing sales and having the peace of mind that professional support is there to help through all the growing pains.