Keeping Your Accounting Clean and Current is Key to Business Success

If you are a business owner, you're constantly pulled in multiple directions. No matter how skilled a multi-tasker you may be, it's easy to fall behind on basic accounting. Letting things go for a week or two is not a big deal, but the longer you put off addressing the issue, the more of an issue it becomes. If you are finding inconsistencies in your financial statements, inventory levels that don't align, abnormally high business expenses, incorrect asset valuation, or accounts payable or receivable reports, you should take them as a clear sign that it is time to get caught up. 

You know the extent of your problem better than anybody else. It may be as simple as burning the midnight oil to update, reconcile, or correct minor mistakes, but it may be a sign of a much bigger problem that can impact your income and profitability - or even put you in trouble with the IRS. If the errors you're seeing date back to last year - or even earlier - then they have been reflected in all of your important documents, including tax returns that have been filed and statements you may have submitted on applications or to potential investors. Mistakes and missed entries can dramatically impact information regarding income as well as expenses enough that you find yourself in need of submitting an amended tax return or contacting stakeholders. 

The good news is that even a big problem can be addressed: you just need to take a serious approach and be diligent. One of the first things you'll need to do is to determine whether it's an issue that you or your staff can take on for yourselves or whether you need to bring on a professional. You'll also need to take a realistic look at how you got yourself into the situation and be honest about what needs to be done to prevent it from happening again. That may mean hiring an additional staff member or signing on with an accounting or bookkeeping firm.

Once you've made the decision to clean up your books, you'll find yourself benefitting in many ways, including:

• You'll have the advantage of having full confidence in the accuracy of your cash accounts, as well as your accounts payable and accounts receivable accounts. You'll eliminate the surprise of learning that clients have been allowed to go months without submitting payments, allowing you to make better decisions about who credit should - and should not - be extended to. You'll also have a much better handle on your cash flow.

• You'll be in a much better position at tax time, with a clear and accurate sense of how much you are likely to be owed or what kind of write-offs and deductions you will be eligible to take.

• You'll be ready to produce and provide accurate financial information quickly to any interested parties, whether that is IRS auditors, potential investors, stakeholders, or board members who want to conduct end-of-year oversight. Being able to quickly hand over information gives you far greater confidence, and will provide greater assurances about your financial stability.

To ensure that your cleanup is covering all bases, make sure that your books include every expense, every sale, and every financial transaction. You need to maintain well-organized files - whether physical or digital - of receipts, bills, invoices, financial statements, and contracts.

Depending upon the size of your business and how extensive your books are, you can choose to avail yourself of one of the inexpensive, intuitive programs available to help you with your accounting tasks, or you may choose to contact a bookkeeping or accounting firm. Either way, acknowledging that you need help is the first step to putting yourself on a better path.

Get tax and accounting tips in your inbox

Subscribe

All Articles by Martinez & Shanken, PLLC