By ,
Published May 03, 2016
In his book The Tax & Legal Playbook, CPA and attorney Mark J. Kohler targets the leading tax and legal questions facing small-business owners, and delivers clear-cut truths, thought-provoking advice, and underutilized solutions to save you time, money, and heartache. In this edited excerpt, the author discusses why it's critical for you to set up an accounting system that you keep updated for your new business.
Maintaining your books isn't something you should do solely as a tax-savings strategy; it can also prevent you from losing your sanity and getting dragged into a potential lawsuit over commingling your funds. Here are five significant reasons for maintaining a separate checkbook and set of books for each of your businesses:
1. Corporate veil. Maintaining a separate checkbook substantiates the corporate veil, one of the primary reasons for forming a new corporation. Having a separate checkbook shows you recognize the company is its own distinct entity. Furthermore, separate checkbooks should encourage you not to commingle personal and business funds.
2. Tax savings. Separate banking will improve bookkeeping procedures, prevent payments from being missed, and provide better records to improve your tax return.
3. Audit protection. Having a separate checkbook will improve your chances in an IRS audit. The IRS will often disallow a number of expenses when personal and business expenses are commingled in a single checkbook.
4. Less stress and more sanity. When your books are disorganized, you’ll feel constant stress to take care of it, and this ultimately can cause you to feel undone. Having separate checking and bookkeeping for a new company will save you time and money in the long run.
5. Improved decision making. Having a separate checkbook starts the process of better bookkeeping, expense tracking, and budgeting, which leads to quality decision making. How can you expect to be a successful business owner without accurate records?
The next step is implementing a system for tracking income and expenses. It’s absolutely critical for small-business owners to at least consider QuickBooks as their primary accounting software system. Yes, there are a few alternatives to QuickBooks, but not many, and even fewer worth considering.
Here are just a few things that QuickBooks can do to help you become a better, smarter business owner:
Be honest with yourself: Do you want to do the bookkeeping for your business? If so, great. But if not, who's going to do it? Have a plan! The following are five options to consider.
Option 1: Learn QuickBooks and input items yourself. I know this strikes fear in some of your hearts. In fact, this may be why your books currently aren’t getting done. But you still may want to hold off delegating any part of the process until you put in a few hours a week to learn the basics, like inputting figures. At the bare minimum, you need to be able to view and print reports and check the accuracy of the work.
Option 2: Hire a family member to keep up the books. This is a great way to have the teenagers or young adults you're supporting financially earn their keep and teach them about entrepreneurship in the process. They'll learn about the heart and soul of small business by doing the books. Adding them to the payroll is also a great tax write-off.
Option 3: Engage a local bookkeeper. This could be a local college student wanting internship/externship hours or a seasoned bookkeeper with affordable rates. It can free up your time so you can do what you know best: Make money for the business. This is also a natural step in the growth of a business before choosing the next option. Remember, this person will probably not prepare your taxes or do significant planning for you; they'll simply maintain your books affordably so you can focus on more pressing tasks.
Option 4: Hire someone “in house.” You'd be amazed how quickly you can find a local college student or bookkeeper wanting to pick up some part- or full-time work for an hourly wage. This person could come in daily or a few days each week to input data and print reports. You might need to provide some supervision, or you could have your outside CPA train and supervise your in-house bookkeeper. It can be extremely convenient to have an employee available to keep things in order. You can also hire someone who can wear different hats and help with other tasks, like answering phones, scanning, doing collections, shipping, or running errands.
Option 5: Use your CPA or tax professional throughout the year. Many business owners like the comfort and security of knowing they not only have highly skilled accountants doing their books daily but the benefit of one-stop shopping for tax planning and quarterly and annual reports as well. It may seem more expensive, but the value of better long-term planning and a higher quality of books can far exceed the cost. More mature and seasoned business owners may naturally “graduate” to a more experienced bookkeeper when the time is right. At most firms, you can get an accounting support package tailored to your budget and needs.
https://www.foxnews.com/us/why-you-cant-afford-to-be-bad-at-bookkeeping