In real estate it may be location, location, location but in business it’s definitely recordkeeping, recordkeeping, recordkeeping. In my August 28, 2012 post, I used the TV show Shark Tank to demonstrate the importance of keeping good records and knowing your numbers. Why am I bringing it up again? Because it’s THAT IMPORTANT!
I encountered 2 business owners today that don’t keep good records – 1 has to amend his return and the 2nd came to see me because he got a letter from the IRS. See my point? An often used excuse as to why their books aren’t kept up to date is because they don’t have the time. In all honesty, if you don’t find the time to keep your books up to date, you are going to find A LOT of time when your business fails and you are sitting at home unemployed.
“Why do I need to? I can just go online and see how much money is in my account. As for my taxes, I just give my accountant my bank statements and he does whatever it is that he does.” There are so many things wrong with this common response, I don’t know where to begin so I’ll go in order:
- The amount shown online doesn’t take into consideration the checks that have been written and haven’t cleared yet. It also doesn’t allow you to see a real-time Balance Sheet and P&L, 2 important reports necessary to run your business and make decisions
- While your bank statements are helpful, they don’t paint the whole picture. For instance, what if we take the total deposits for the year and record that as your sales? This won’t factor in any personal $$ put into the business or any loans taken. Looking at each check image is also very time consuming for your financial professional which, in the long run, will cost you more.
- As a business owner, you really should know the basics of accounting as far as how you are structured therefore how you are taxed, what forms need to be filed and when, what gets included in income, and what is deductible as an expense.
If those reasons aren’t enough, another reason is to track your progress/regress. Being able to compare your results of this year with those of last year really helps you notice if something has gone awry.
Why are sales down from last year?
What month(s) is my income the lowest and what kind of business can I try to attract during those months?
How much cash do I actually have?
As I think about it while writing this post, any struggling or failed business that I’ve worked with has not kept good records. Unfortunately too many people think that because they can do a job and perform a task that they can run a business.