By Emil Abedian
Most small business owners would agree that tax season is stressful. Year after year many find themselves scrambling to get their books together. Then they keep their fingers crossed hoping their accountants can make enough sense of their DIY system to keep them from getting completely slammed with taxes.
According to the small business mentorship organization SCORE, 40 percent of small business owners spend in excess of 80 hours preparing their books before they make the handoff to their accounting partners at tax time. And often what accountants have to work with are books laden with inaccuracies and errors – hardly the makings of a healthy tax return.
If this tax season left you licking your wounds, consider this advice to help you break the pattern of the stressful tax season scramble next year.
Treat Every Season Like Tax Season
When you’re down in the trenches of your small business it can be easy to fall behind on tedious, but essential, tasks like financial record keeping. After all, bookkeeping is probably not the aspect of your company that you’re most passionate about. But when you put it off, weeks can quickly turn to months. Before you know it, it’s January and you’re staring at a pile of receipts and invoices wondering how to make heads or tails of them for your tax returns.
It can take countless hours to recreate your books after the fact. And, when you do your books looking in the rear view mirror, you’re almost guaranteed to miss transactions that could actually make you vulnerable to fines and penalties. Why tempt fate? Instead, treat every season like it’s tax season. Resolve to track your financial transactions on a daily, weekly or monthly basis – whichever your industry demands.
Know Your Limitations
As a small business owner, you may be the best person to deal with your customers. You may also be the best person to forge new products or offerings for your company. But unless you are truly a jack of all trades, you are probably not the best person to track your company’s finances.
Trying to be all things to your company diverts your focus from the core aspects of your business and your own core strengths. If you step back and take an objective view of your role you’ll likely find you’d be better served by outsourcing your bookkeeping.
Many entrepreneurs are reluctant to let go of these duties because they think it’s cheaper to do on their own. Others think they’ll save by having their accountants just handle it for them at tax time. Both groups are wrong. As a leader, your time is valuable and it’s much better spent on the facets of your business that you know best. And, paying your accountant to reconcile your books before they compile your return is like asking a heart surgeon to apply a bandaid.
Empower Your Accountant
Accountants are not miracle workers. They can only do so much with the information business owners supply them. If you go to yours with a shoebox full of receipts and statements or some hastily drawn up spreadsheets, you’re limiting the ways they can help you when it’s time to file. But, if your business ledgers are accurate and your expenditures are categorized correctly, your accountant should easily be able to spot opportunities to lower your taxable income with tax breaks or write offs.
An even better idea is keeping your accountant in the loop year round and using them as a true business consultant, rather than as a triage nurse at year end. Working from precise records, your accountant can see financial hot spots in your business and counsel you on areas for improvement. They can also suggest changes you can implement based on actual financial data that will work to your advantage when you file.
Always Know Where You Stand
The worst thing you can do for your business is wait until the end of the year and tax preparation to see how you did. What if you don’t like what you see? At that point it’s too late to implement changes, and in some cases the damage that’s already done may be hard to bounce back from. Your financial records can always give you a read on the health of your company, but not if your data is sitting in a pile on your desk. When your records are well kept, your books can be a powerful business tool that gives you the intelligence to make smart decisions.
Don’t let next year’s tax season sneak up on you. Once the current tax season dust settles, brush yourself off and consider heeding this financial advice for your company. It can mean dramatic improvements for your business that you won’t have to wait for the next tax season to see.