Picture it – Your Business, LLC, April 14th 20-“you pick the year”. Business is doing relatively great, you’re riding high on the small business/self-employed cloud, there is some cash in the bank, your clients are moderately happy, and you’ve managed to replace your 9 to 5 income without the help of a bookkeeper or accountant. You pay $250 to file an extension with your CPA and go on your merry way. 3 months later your CPA calls. The conversation goes like this:
“You owe $4,513 in self-employment taxes this year. That unopened IRS envelope you handed to me, because you haven’t reported a profit in over 5 years and all your “employees” are independent contractors you’re being audited for the past 3 years AND you missed out on that huge tax credit that expired April 30th. SURE we’ll help you get it together…it’ll be $3,500… your invoice is in the mail! ”
That’s a bit over dramatized as most CPAs and Tax Preparers are not heartless and detached; in fact many of them work tirelessly to encourage small businesses to plan ahead, follow IRS guidelines and actually offer monthly bookkeeping services to businesses to avoid these pitfalls. But the fact remains that a vast majority of small business owners look at bookkeeping and accounting as an afterthought and even put off planning until after they started making money, and incurring expenses or simply tax time. “Rear-view accounting” is what most small businesses do, and what I described above. It’s doing only what’s necessary regarding the financial management of your business and seeking counsel from professionals when desperation strikes.
Proactive Accounting is a real simple concept; it involves having your bookkeeper and CPA in the front seat with you as your trusted advisor from “Day 0” of creating your business. A Proactive Bookkeeper can offer a wealth of benefits to your business that can save you money from the right entity selection, ensuring deductions are maximized and more.
5 ways Proactive Accounting is good for business:
- Can help with potential borrowing – Lenders almost always want to see a well written business plan. Some probably want to also see that you’ve actually started making money in your business already. A bookkeeper can ensure your books are sound and accurate, something that is crucial to a potential investor.
- Can help avoid costly pitfalls – Consider most of us do not realize that the IRS makes modifications or changes to the tax code more often than we know that directly impact micro and small businesses. A bookkeeper on your “team” on a consistent basis can help you identify potential trouble before tax time.
- Avoid Cash Flow issues – Marketing Rules but CASH IS KING. One small business pitfall in cash management is not knowing how money is flowing through your business . Having a simple monthly review of your cash flow can help you determine if you charge enough for services or spending too much to avoid some potential cash flow meltdowns on the way.
- You’re always Audit Proof – Poor recordkeeping is one of the top reasons small businesses fail or get trapped in IRS audits. Great bookkeeping spills over and improves other parts of your business as well. A bookkeeper can set your records right the first time.
- One less thing to worry about! – You’re good at what you do and making money doing it. Hiring a qualified bookkeeper on a monthly retainer may seem like an expense you can’t afford, but add up the hours you spend working on your books as an actual LOSS of potential revenue as you could have spend that same time growing your business. How nice would it be to know that you can bring home the bacon and someone else is going to make sure it doesn’t go bad.
What do you do next? Fortunately there are bookkeepers and accountants out there who offer Proactive Bookkeeping services and whose fees can run as low as $600 annually ($50 a month) for simple reconciliation and review of your books each month. Some can even provide you training on how to manage your own books if you’d prefer that. To get started, find a local bookkeeper and ask them if they offer a consultation of your business systems.
Katrina M. Harrell is a self-proclaimed “Proactive Bookkeeper” ,Small business champion, accountant and small business consultant in the Raleigh, North Carolina area. She has been an accountant for over 12 years and is also CEO of YourSimple Bookkeeper, Inc. which provides virtual bookkeeping services to micro and small business across the country as well as creator of YourSimple Bookkeeper in-a-Box™which provides practical recordkeeping and bookkeeping guidance for micro business owners. Her blogs about small business, entrepreneurship and financial management can be found on www.katrinamharrell.com or www.facebook.com/yoursimplebookkeeperdotcom.