How Bookkeeping Ruins Your Business
Written By Geoff Burns
Bookkeeping is supposed to provide the data and information necessary to make actionable decisions for your business. Reports created by your accounting software is a picture of your financial health, just as a routine physical from your doctor tells you the pertinent information about your body. Your doctor can read the data from your chart and make recommendations to improve your health. So why is your bookkeeping and financial reports not helping you make better choices for your business? Because it is ruining your business.
Red Flag for Audits
The problem begins when business owners think that the accounting and bookkeeping is easy and can wait. According to the National Small Business Association, 40% of small business owners say that bookkeeping and taxes are the worst part of owning a business. Now under a new administration and with PPP loan fraud, the IRS has announced that it will increase audits of small businesses by 50%. Don’t believe me? Click here to read the article. The real issue is not how large the numbers are, but often how low. If you have read any of my previous articles, you know that cashflow is king. The IRS knows that businesses cannot survive without cashflow either. So a business that continues to survive with little or no cashflow is a major red-flag.
Many business owners just don’t “do” their books. That makes them prime targets for audits. Now, more than ever. So bookkeeping must be done, and done correctly. Additionally, bookkeeping takes time. For many business owners, bookkeeping takes more than 80 hours annually to get their tax preparer the information they need to file. That is time that business owners cannot get back. Time that could be spent with family, on vacation, date nights, sales calls, etc. And are your numbers accurate? Can you prove it to the IRS? If not, your mistakes may cost you even more time and money.
Too Much To Handle
Many business owners turn to someone they know; a family member or a friend who is looking for some extra work and is willing to help out. It sounds like a good plan, but does this family member or friend have the skills and experience to manage the books correctly? What if they make a mistake? What if that mistake costs the business money? What if people are laid off people or the business gets audited because of that mistake? What happens to the relationship with that person now?
A New Idea
What about a CPA? They would be qualified to manage your books correctly. They have the extra training and certifications needed to make sure that everything is accurate. Their services also command a premium price. Expect a quality CPA to charge well over $100/hour for their services. If you read my article on the differences between CPAs and Bookkeepers, you know that they can file your taxes and provide business strategies for you. But they will need you to provide the reports needed to file your taxes, or they will need access to your books to create their own reports. So now the business owner must pay a very high price, or continue doing their own bookkeeping.
Many business owners decide to find a bookkeeper that isn’t a family member or friend. Wages for entry level bookkeepers are about $35,000-$40,000. With benefits, taxes and other employment costs, the investment may reach $50,000 annually. Plus there is the cost of the computer, accounting software and any other office supplies. But wait, there’s more. Does the business only need “entry-level” bookkeeping? Will this new bookkeeper provide reports that make sense. Can the new-hire interpret the reports so you can make better financial decisions?
What is Going On?
If you read my article on why you should hire a professional bookkeeper, you know that 82% of businesses that fail, fail because of cashflow problems. There is a difference between knowing that 15+10 is 25, and knowing to add 15 to 10 to get the correct answer. Anyone can put numbers into accounting software. But the average business owner does not know how to classify transactions in a meaningful way. In my experience, most business owners don’t know what their financial statements mean. So even if the statements are correct, they are not helpful.
Many business owners have put money into their business, then taken money back out, just to put it back in to keep the business afloat. It doesn’t have to be that way. So maybe a loan is in order. But if the books are wrong, the reports are wrong. If those reports are used to apply for a loan, it may get rejected and the business owner may never really understand why. Now it is back to business as usual, except the business owner feels worse about the situation.
The Professional Bookkeeper and trusted CPA combination. Outsourcing bookkeeping to a professional who knows the industry and your business goals is the best choice you can make. Now you can leverage the value of a professional who will manage your books and provide actionable data so you can get back to running your business. A professional bookkeeper can even interact on your behalf with your CPA and Payroll provider for less than the cost of employing an entry-level bookkeeper. Your bookkeeper becomes a trusted business partner who is as passionate about your success as you are. If you are ready to get your business back on track and on the path to success, click the link below to schedule a free consultation.