Most businesses with twenty or fewer employees choose to hire an external accountant to perform limited functions for the business. Below is a list of services that you should look for before deciding on a local accounting firm.
Accounting and financial statements
Form filing to taxing authorities
Income tax preparation
There are a few choices in terms of bookkeeping software available to a small business owner. The two dominant software packages in the small business market are QuickBooks and Peachtree. A small business owner must consider ease of use, price and support as a software package is chosen assuming that the software will support the business model. The important thing for a small business owner to keep in mind is that although they can input data into a software system it does not mean that financial statements will be usable in terms of accuracy, timeliness and completeness. If you are not an accountant, please keep in mind that a software package will simply be a nice way to be organized and nothing more. A professional will still be needed to prepare complete and accurate financial statements. Timeliness of the financial statements often depends on you and how quickly the documentation and data needed to prepare financial statements are made ready to the accountant by you.
Many small business owners are scared of handling taxes, so they often have professionals prepare tax forms such as sales tax forms, payroll tax forms and income tax forms. They are more likely to handle their own accounting and bookkeeping. Bookkeeping is defined as routine business transactions such as accounts payable (paying vendors), accounts receivable (invoicing customers, collecting payments and managing not yet collected invoices) and other routine related functions such as operating a point of sale system where sales are recorded and inventory managed. Accounting is defined as non-routine business transactions and financial statement preparation to mention two functions related to small businesses.
However, sales tax form preparation and payroll tax preparation, which most small business owners are hesitant to handle themselves, are typically the easiest accounting functions requiring the least amount of knowledge and skills. A small business should instead make sure that professionals are preparing their financial statements. Without timely, accurate and reliable financial statements a business owner is operating blindly. The business owner must get an accurate picture of where they are before she/he can determine where they can go.
If your small business has staff, it is especially important to ensure that you have addressed internal control issues. Internal control processes reduces chances of for example embezzlement occurring in your business. Picture a bookkeeper that you hire who pays all the bills, makes deposits and reconciles the bank statement for you. Such an individual, often a trusted employee, has an abundance of opportunities to steal from your business. One example comes to mind. This bookkeeper would write checks to her self, have the owner sign the check usually in a hurry with many other checks, change the posting in QuickBooks to e.g. Verizon Wireless as the payee, and cash the check. Unfortunately, the issue was not apparent on the financial statements because it appeared under telephone expenses. The owner finally discovered the issue after $50,000 was embezzled.
Processes addressing internal control serve to reduce the chances of the aforementioned real life example from occurring. Businesses with more than the owner-employee as staff should address internal control and put in place segregation of duties as per the above discussion.It is often difficult to segregate the functions of accountability, record keeping and control in a very small business with staff but it must be done unless it is not practical or you have determined that the risk is minimal. You can think of the small business owner as the individual accountable for the profitability of the business. The bookkeeper does the record keeping by creating invoices, recording payments on accounts and paying bills. Separately, you have an individual who is preparing financial statements, analyzing the data, looking for issues i.e. providing control.
For example: You purchase a 2-year extended warranty on September 1. In the first year, you can only deduct 4 months of the total cost of the warranty. In year 2, 12 months of the cost can be deducted. If the auto isn’t used 100% for business, you can only deduct the portion that applies to the business. So be sure and keep a mileage log of the business portion of your driving.
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