Recently I was compiling for our family and individual clients a list of common mistakes made in their taxes, as sort of a public service for those who try to walk down that lonely road of preparing their own taxes.
As I did so, I had a small revelation: Many business owners make the exact same mistakes … but it ends up costing them even more dearly.
And the worst part? Often, they don’t even know it.
This is the time of year when we begin to pull together for businesses their books — shoeboxes, for some. Often, we accountants are called upon to clean up a big fat mess — made either by another accountant, a part-time bookkeeper in over their head, or (shudder) the business owners themselves.
I’m in an expansive mood, I suppose, where I’m revealing our internal “secrets” from around Team McLaughlin, and I’ve put together a short list of the kind of accounting mistakes we so often correct on behalf of our clients.
Year-end (and the subsequent start of a new year) is actually the perfect time to make a change in this area — so, if you have a business associate who could use another set of eyes, please, would you kindly forward them this email?
(We generously reward referrals, of course, but we also don’t think our clients need mercenary self-interest only to help out their friends. So do your friends a favor, and toss them an accounting lifeline.)
And, of course, if you have questions about any of these issues for yourself, feel free to drop me a note, and we’ll do what we can to help you out!
“Real World” Business Strategy Note
Four Common Accounting Blunders For Small Business
“Any man can win when things go his way, it’s the man who overcomes adversity that is the true champion.” – Jock Ewing
As I mentioned above, these mistakes are common enough that we could fix many of them in our sleep (well, perhaps that’s not *exactly* true). And, sadly, they’re usually created by either inexperience on the part of the bookkeeper involved, OR by lack of communication from the business owner.
I hope you can already recognize a good solution to the first issue above, but the second source of the problem could in fact be YOU!
Either way, here are four of the most common mistakes we see around Team McLaughlin (but certainly not the only ones) …
1. Tracking Expenses Wrong.
Many business owners pay for expenses out of their own personal funds. And it’s no surprise that they often don’t keep accurate records of these expenses. Change that! Here’s why: The IRS frowns at the co-mingling of business and personal funds, and the best way to protect yourself in the event of an IRS audit is to avoid doing this in the first place.
That aside, you need to maintain effective communication between the bookkeeper and the rest of the team, be it yourself, or other staff. Essentially, your bookkeeper needs to make sure that everything is coded properly, or you’ll be in some hot water.
2. Employee Misclassifications.
Many businesses have a combination of independent contractors and employees. And this is an area in which the IRS has been increasingly ruthless, as they search about for sources of revenue (i.e., penalties and additional taxes). Truly, there is a lot of chatter on accountant boards about these issues having serious effects for businesses these days.
Here’s the relevant IRS guidance on it:
3. No Internal Cash Controls.
Your business should have a monetary “line in the sand” on a monthly basis, the crossing of which should set off little alarms. These can range from the sophisticated (multiple trigger points and consequences) to the very rudimentary act of budgeting for each month.
But the main point is that your ACCOUNTING system should show you the way on this, on a monthly basis.
4. Backdating Too Much.
Sure, it’s painful to have to reconcile and keep every expense entered on a monthly basis — which is why so many business owners don’t keep up with it (even when they’ve “outsourced” the task to a part-timer). The problem with playing continual catch-up is that problems AND opportunities are spotted too late.
For example, say you think one of your service or product lines is the most profitable … but circumstances have changed (whether expenses or other cost factors), and now a different item is most profitable. Well, if you’ve been pushing for what you *thought* was most profitable for six months and only now realize that you should have been pursuing a different strategy, that’s a bunch of time and money wasted.
In short, get a professional to help you with this stuff.
My team and I are here for you, to help in any way we can.
Feel very free to forward this article to a business associate or client you know who could benefit from our assistance — or simply send them our way? While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners. And we always make room for referrals from trusted sources like you.
Warmly (and until next week),
Valerie McLaughlin, EA