How Are Your Company Records?

Four Reason to Keep Good Records

 Some aspect of the accounting or financial reporting world has been part of my entire work career.  Some people have second careers about half way into their work life but not me.  It is what I know and most days what I am passionate about.  I have been in this field long enough to see it evolve from keeping records with ledger pads, pencils, and calculators to computerized systems and complex areas of specialties.  

Small business accounting is not as complex as some areas of accounting but it is no less important than if the accounting was for a major company like GM.  In this age of technology many small business owners give little attention to their accounting records and even less in what that information can/could tell them.  I have seen accounting records for small businesses to range from a pile of receipts that are only organized once a year in order to do the tax return, to someone, usually a spouse, trying to record information into some accounting software such as QuickBooks.  Usually if someone is doing the record keeping they normally do not understanding what they are doing and/or no one is looking at the information.  

Here are Four reasons why your company information should be kept current and what that information can tell you if done properly. 

  1. At a minimum, timely kept information would provide an accurate bank account balance. I have been amazed at the number of business accounts I have seen that do not even keep a paper check register balance up to date and end up paying thousands of dollars (not hundreds) in bank charges and overdraft fees. Bouncing checks and paying unnecessary late charges put a drag on limited cash resources and endangers the company’s credit.
  2. Accurate and appropriate recording of income and cost of goods (or services) will give insight into what is selling and costing. Matching up what it costs to produce or provide a particular item or service can provide a business owner with invaluable information. I’ve seen businesses almost go bankrupt until their income and expenses were properly matched up. But once matched up costly lines can either be dropped or prices increased to reflect the cost associated with each.
  3. Timely tax planning can save money. When accounting information is only complied once a year at tax time there is no way to anticipate the tax burden much less make any plans to avoid it. We will get a flurry of calls in December asking about buying stuff, usually vehicles. I’m not a fan of buying stuff just to be buying to avoid taxes. It makes no sense to me to strap the company with a $30,000 debt to save maybe $3,000 in taxes. But there is more to tax planning than just buying things. Timing of purchases, the company’s ability to continue, the future growth potential, and investment in retirement plans are just a few things to consider when thinking about taxes.
  4. Correct records help to avoid costly mistakes. Recently, we received a company’s accounting records to prepare the tax return. They were keeping the accounting records themselves. In cases like this I always do some checking to feel comfortable that the information is correct. While doing this I noticed somethings that looked odd to me. Therefore, I dug deeper. What I found was that some items were duplicated. If I had prepared the return with the information I was originally given the business owner would have paid tax on an additional $60,000 that wasn’t there. It took us longer and cost more to fix the records than if we had done the bookkeeping all year. 

As a small business owner myself I know how tight finances are at times.  There are places to be frugal.  Keeping the company’s financial information is not one of those places. The costs that can be avoided from good records and information that can help guide the business owner should more than outweigh the cost of keeping this information.