A common theme with my clients this past week has been the importance of good bookkeeping. Two different small business clients were surprised when I told them that they were going to owe $30-$40,000 in additional taxes. When we compared what they gave us this year to prior years’ tax returns, we were able to tell that they failed to give us some major expense items. Now they have to drop everything and recreate last year’s records or pay the surprise tax.
Now the income is usually pretty easy to recreate, especially since neither is a predominately cash business. Tracking expenses, on the other hand, is much harder. They tend to pay with cash and have no system for capturing cash and credit card expenses. They just try to find all the receipts they can at the end of the year.
I try to motivate them by pointing out that every $100 in deductions they can prove is worth $35 in tax savings (assuming a top tax rate of 35%).
I also received a call from another small business owner yesterday who told me that he was turned down for financing for his small manufacturing business because he didn’t have an accounting system in place.
Let me shout this so everyone can hear me: IF YOU ARE IN BUSINESS YOU MUST HAVE AN ACCOUNTING SYSTEM! No exceptions! No excuses!
And in today’s world, there really is no excuse not to. There are tons of options available. In my opinion the best solution for 90% of startup businesses is QuickBooks.
Contact me if you need help fixing your accounting records for 2011. By capturing every tax deduction possible you could easily save more than the cost of setting up your accounting system.