Why You Can’t Afford to Be Bad at Bookkeeping
In his book The Tax & Legal Playbook, CPA and attorney Mark J. Kohler targets the leading tax and legal questions facing small-business owners, and delivers clear-cut truths, thought-provoking advice, and underutilized solutions to save you time, money, and heartache. In this edited excerpt, the author discusses why it’s critical for you to set up an accounting system that you keep updated for your new business.
Maintaining your books 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:
1. Corporate veil. Maintaining a separate checkbook substantiates the corporate veil, one of the primary reasons for forming a new corporation. Having a separate checkbook shows you recognize the company is its own distinct entity. Furthermore, separate checkbooks should encourage you not to commingle personal and business funds.
2. Tax savings. Separate banking will improve bookkeeping procedures, prevent payments from being missed, and provide better records to improve your tax return.
3. Audit protection. Having a separate checkbook will improve your chances in an IRS audit. The IRS will often disallow a number of expenses when personal and business expenses are commingled in a single checkbook.
4. Less stress and more sanity. 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.
5. Improved decision making. Having a separate checkbook starts the process of better bookkeeping, expense tracking, and budgeting, which leads to quality decision making. How can you expect to be a successful business owner without accurate records?
The next step is implementing a system 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.
Here are just a few things that QuickBooks can do to help you become a better, smarter business owner:
Keep essential information at your fingertips. QuickBooks generates reports that allow you to easily stay abreast of your business’s most important financial information, like profit and loss by product or property, accounts receivable by customer, sales reports, or expense reports.
Better use of your online banking system. QuickBooks allows you to harness the online benefits that many banks offer. It coordinates with most banks, even lesser-known ones, to provide instantaneous information so you can download transactions and reconcile your data with ease.
Collect more of your accounts receivable. QuickBooks allows you to generate professional-looking invoices that can be delivered via email and offer your customers the option to make online payments. You can also generate statements and create various reports to determine who your high-risk customers are for collection purposes.
Pay your business bills efficiently. Let QuickBooks track your accounts payable so you can better manage your cash flow and pay bills when it’s most convenient for you. Ultimately you’ll save on past-due fees and interest, and you’ll be able to interact with your vendors in a more professional manner.
Receive payments immediately. Accept credit card payments online, and have the funds recorded directly in your QuickBooks file. You can even upgrade your QuickBooks software and tech supplies to integrate a point-of-sale (POS) system with your cash register and merchant/credit card machine.
Access your financial information anywhere. The online version of QuickBooks allows you or your accountant to access your books anywhere you have an internet connection.
Use scanning software to track receipts. Scan in receipts through a service like NeatReceipts, which immediately records and categorizes the information in QuickBooks. You can then keep a copy in your cloud storage of all receipts and contracts for audit and legal protection.
Get help implementing your accounting system
Be honest with yourself: Do you want to do the bookkeeping for your business? If so, great. But if not, who’s going to do it? Have a plan! The following are five 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.
Read the rest of the article by Mark J. Kohler from Entrepreneur Tax Center here: http://www.entrepreneur.com/article/244189