1. Massive and costly accounting clean-up/reconciliations right after year end.
2. Missed business tax deductions each year due to poor record keeping.
The following recommendations are to help growing businesses to get their finances organized and take full advantage tax deductions available.
Hire Appropriate Professionals
Hiring the proper professionals can only benefit a business. Hiring the right professionals depends on the stage of the business and complexity of its accounting transactions. Additionally, when considering hiring an expert make sure that they have expertise in the industry. For example a specialized certified public accountant (CPA) in technology accounting will have a lot of expertise in the matters of technology companies and will generate greater benefits to technology clients.
Certified Public Accountant (CPA) – A CPA can be of great benefit for all businesses since are very knowledgeable in accounting and tax. CPAs have great knowledge of financial statements and tax deductions. They are great professionals to use at all stages of a business, but they really have the most impact in growing businesses without the resources to hire a controller or CFO. A CPA can be a great partner and gives great advise.
Bookkeepers – These professionals are effective and efficient when recording transactions and they are great at the earliest stages of a business. Generally, a business less than 3 years old will do well with just contracting a bookkeeper to keep up with its financial records and just have a CPA to review financials and prepare taxes on a yearly basis. As accounting becomes more complex, bookkeepers are most likely to be outgrown by the businesses needs.
Maintain Receipts and Documentation For All Financial Transactions
It is not only a great habit to keep receipts and proper documentation for all expenses and sales, but it also helps whomever is reconciling your books to appropriately classify those expenses and sales to take the proper tax deductions at the end of the year. Additionally, The IRS requires all companies to maintain proper documentation for all financial transactions for a period of 3 years from the date the taxes are filed.
Reconcile All Business Bank Accounts
If the bank account is not reconciled to the accounting system on a monthly basis, it could create a nightmare at the end of the year and could end up costing lots of time and money to have it reconciled.
Obtain Proper Documentation From All Vendors
IRS requires W-2s and 1099s to be issued on a yearly basis to any vendor or employee that a business paid over $600 for services. It is ideal to keep collect W-9s from all your vendors and properly assign expenses to vendors when recording transactions to facilitate the generation of 1099s at the end of the year.
Review Financial Statements On A Monthly Basis
Business owners must make a habit to have a financial review at least once a month. From the time opening a business, a business owner must keep a close eye in his/her finances and try to understand the financial statements and their impact. A monthly review is ideal to keep identify strengths and weaknesses.
All business owners shall be aware of the importance and the benefits that are obtained from organized accounting. Organized accounting can also generate great tax deductions.