Keeping clear business records is important. It helps you understand how much money is owed to you, how much you owe and will prevent you from making costly – not to mention illegal – errors. It can also help you monitor your business and identify sources of income.
Below is a list of records that you should keep accurately and orderly:
- Payroll and employment taxes
- Sales and purchases
- Expenses
- Bank statements
- Profit and loss statements
- Cash flow analysis
Accounts receivable and accounts payable are also two important records to keep. Accounts receivable is a claim from an uncollected amount, usually from a sale on credit. For instance, a sale has been made but the money hasn't been collected – only credited.
Accounts payable is an amount owed to a vendor or credit for completed goods or services. For instance, a small business might have short-term payments to banks.
The official website of the IRS has more information on recordkeeping.
Tax Planning
Tax planning and filing isn't fun but it's crucial to make sure everything is handled correctly. In addition to reducing filing errors and preventing unnecessary audits, an accountant can help you save money. Because it's their job to stay up to date with tax codes and regulations, they'll be able to advise you on how much money your business needs to put aside – so there aren't any surprises.
Audit
Before you freak out – an audit isn't always bad! The dreaded "IRS audit" occurs when a business isn't filing their taxes correctly. However, it's also pretty standard for a business to be audited when a bank or investor wants to understand its financial position to determine the risk before they invest capital.
When it comes to preparing for any audit, your accountant can be your best friend because they'll save you loads of time preparing for the audit.
To prevent your business from getting "the bad audit", here are some tips to follow:
- File and pay your taxes on time
- Don't incorrectly (or forget to) file business sales and receipts
- Don't report personal costs as business expenses
- Keep accurate business records
- Know your specific business tax reporting obligations
DIY vs Hiring
After reviewing the basic accounting and bookkeeping services, you're probably wondering whether it's something you can handle yourself – or need to hand off to a professional. One of the first things to consider when making this decision is looking at the volume and frequency of when you need certain financial tasks done. For instance, will you need to prepare weekly or monthly financial reports or only quarterly and yearly reports?
Another point to consider is financial knowledge. Is there someone in your office who is qualified to handle important accounting and bookkeeping services? If not, an accountant might be your safest bet.
It's important to note that it's not necessary to hire a full-time accountant. Accountants are quite flexible and can be paid hourly. In addition, if you do decide to outsource accounting and bookkeeping services, you wouldn't be responsible for providing benefits like you would for an in-house employee.
If you decide to hire an accountant or bookkeeper, here are a few tips on finding the right one:
- Check references and previous experience
- Make sure the candidate is educated in accounting software and technology
- Make sure the candidate is fluent in accounting policies and procedures
- Test that the candidate can clearly communicate financial lingo in words you understand
- Make sure the candidate is sociable and not a robot
Small business owners and entrepreneurs typically outsource accounting and bookkeeping services. However, if you do decide to handle these tasks yourself, there are helpful tools out there for you to use.