I want to share with you some real world experiences I have had with clients, in which, if they had hired a bookkeeping firm they might have avoided costly mistakes. I don’t mean to say this was their fault. They are entrepreneurs and entrepreneurs do their best to cut costs as much as they can. However, there is a point where it is more helpful than not to have some key experts on your team.
I will be the first to tell you that I don’t like how many accounting software companies out there try to empower business owners to hit the ground running and use their software with minimal training. To me this is like if you decided to build a house and just sort of threw together some blueprints without working with an architect. Certified Public Accountants (CPAs) are required to meet certain accounting education requirements, obtain work experience hours under an experienced CPA, must pass a grueling 4-part exam, and maintain continuing education annually. I don’t say this to make us sound overly important, I just want to make the point that accounting is not easy and it takes time to learn all the ins and outs of maintaining the finances for a business.
I am going to tell you why an experienced bookkeeping firm (led by a CPA) is a must for business owners at a certain point in their business development. Let’s talk about the areas where costs can pop up that can easily be avoided.
Tax penalties due to missed deadlines
These come in all sorts of types and sizes. I have had clients who incur penalties related to late payroll tax filings, late sales tax filings, or late estimated tax payment filings. Let’s face it taxes are complicated. If you are a business owner, you are focused on running your business and it is easy for deadlines to slip your mind.
Tax penalties due to changes in tax law
Tax law in constantly in flux. Sales and payroll taxes are one of the more complex areas when it comes to tax filings and payments. Letting an expert handle these payments frees you up to handle the other important functions of your business. You might spend countless hours researching changes in tax law or making sure you are up-to-date. Letting an expert like an accountant handle this will save you so much time and ensure it is done properly.
Accounting mistakes resulting in underpaid income taxes
If accounting it not done correctly it can significantly impact the tax liability owed for a company. In other words, I have seen several clients do something wrong in their record keeping and later find out that they owe thousands of dollars in taxes that they previously did not think they owed (and that also comes with tax penalities).
To give a real world example this certain type of error happened to 3 of my clients. Without getting into too many details, this error involved liability accounts. My clients booked what they thought were expenses to an expense account instead of back to the appropriate liability account. This basically serves to overstate expenses and as a result understate income in a previous tax year. That means a larger tax liability is owed than what was paid.
My heart drops when I have to tell clients about this. It is very frustrating and again no fault of the business owner. They were doing the best they could and did not study accounting in school. So, back to the point. Hire an expert to help you with this stuff. It may seem like a cost you can’t afford now, but the cost of high tax penalties or major mistakes in your tax filings is way worse.
Start the conversation and at least talk with a bookkeeping firm. They can tell you if it is the right time to start with their services. Don’t forget to ask if the firm is led by a Certified Public Accountant. If you are very small and just starting out, you may not face some of these more complex issues, but in time I recommend building your team of experts. It is an insurance policy you will not regret!