Compiling a small business income tax return is rarely a pleasant experience, but for those company owners who have neglected their finances for the past year, it can be torture.
Typically, the owners who struggle the most have poor records or discover during the course of filling out the return they don’t have the cash to pay their tax bills. Chances are, an owner in either scenario doesn’t have a good handle on the overall business, let alone the company’s taxes.
“It’s very hard to run a business without reliable financial information,” said Gregg Wind, a certified public accountant with Wind Bremer Hockenberg LLP in Los Angeles. “You could be spending too much in a certain area, or set goals in a certain area, but you’ll never know how you are doing.”
Perhaps the biggest mistake many small business owners make is to consider taxes a once-a-year event. They should be an integral, ongoing part of operating a business — not the main driver, but another facet of a well-run company.
The culprit is often poor record-keeping. Many owners are so preoccupied during the year with trying to bring in new business and keeping current clients and customers happy that it just isn’t a priority to keep really good records. Tax time then becomes a nightmare of sifting through receipts and invoices — if they can all be found.
Wind noted that with the record-keeping software available for small businesses, it is much easier for a company owner to organize his or her finances.
Moreover, “it will save a lot of money in adviser fees if you’re organized,” he said, noting that owners who show up at an accountant’s with a haphazard pile of invoices and receipts end up paying a lot of money to have the mess straightened out.
Still, it can be demoralizing to sit with a disorganized set of books and records, and the truth is, if that’s been your modus operandi, your 2006 taxes are going to be a chore. But it’s not too late to get yourself on track for the rest of 2007 and beyond.
Getting organized doesn’t have to be hard, or expensive. It does, however, require that you make some decisions about how you run your business.
For openers, you need to decide whether it wouldn’t make more sense to have someone else do the work for you. If you haven’t been able to keep your records in good shape, and it’s unlikely that you’re going to find the time to consistently take care of them, then you’re probably better off delegating the job. It can be hard for many do-it-yourself entrepreneurs to relinquish the task to someone else, but in the long run, it should benefit the business.
Many small business owners are understandably worried about expenses, but Wind noted that there are resources to help them take care of their finances without running up a huge bill. You might find there is plenty of savvy and affordable help to be found, and it doesn’t mean hiring a full-time worker.
For example, accounting students at a nearby college are usually looking to make some money using the skills they’re honing. And there are plenty of bookkeepers willing to work part-time.
Another option is a temporary staffing agency, but you will have to pay a fee, so it’s best to try the other avenues first.
But even if you do get help getting your books and records together, you do need to be paying frequent attention to what they say. You need to be sure your bank reconciliation is done monthly, and you need to know where your cash flow stands.
Well-kept records can also help you assess whether your expenses are too high or whether you have problem customers who aren’t paying on time. These are critical pieces of information that will have an impact on how you’re running your company.
If you know where you stand throughout the year, then compiling your income tax return can be more a routine event, not a traumatic one.