When you first started your business, bookkeeping was 15 minutes at the end of the day. Maybe you updated a spreadsheet and tossed a few receipts in a drawer. When tax time came around, you sent the drawer of receipts and the spreadsheet to your accountant.
As the business grew, you had less time for bookkeeping, but more of it to do. You decided to move everything to QuickBooks. The only problem was the process didn’t seem to go any faster. You were still spending too much time after hours keeping the books. The DIY QuickBooks idea wasn’t working out like you thought.
Giving you more time to run your business is only one reason to let a professional do your bookkeeping on QuickBooks. Professionals know what to look for. They know where most mistakes occur, and they know how to fix them quickly. Let’s look at five reasons to leave QuickBooks to the professionals.
Expenses record the resources spent to grow your company, but they also reduce its value. For example, income before taxes is calculated by subtracting expenses from revenue. Creating multiple expenses accounts can help businesses track their expenses and adjust expenditures if they exceed a set threshold, leading to a stronger balance sheet.
Every bill that is paid should be tied to an account in QuickBooks. However, creating too many accounts can result in unnecessary work and make it difficult to view overall expenses. For example, do you need separate accounts for each utility or will one account for all utilities be enough?
There are less obvious expense accounts such as cost of goods sold, interest, and depreciation that should be maintained. Maintaining these accounts is essential for tax purposes. If you have a business loan, you can enter the entire monthly payment as an expense, or you can place the interest in a separate account for tax purposes. QuickBook professionals know how to separate payments over multiple accounts for improved financial tracking. They know how to do it without creating duplicate entries.
Liabilities are things that a business owes individuals or organizations. They include yet-to-be-paid bills. If bills are not entered when received, it’s impossible to know how much cash has already been allocated but not spent. Unpaid bills are a liability because they represent debts to be paid.
Accounts payable is just one example of liabilities. Unpaid wages, tax payments, or 401K contributions are other examples of liabilities. Loans are a liability that can be reduced as each payment is made. Knowing how to accurately record liabilities is something an expert in QuickBooks can do.
Accurate accounting of liabilities makes it easier for business owners to know what cash reserves are needed to cover all liabilities. It also protects against surprises. Many small businesses get into trouble when taxes come due because they didn’t include them in their accounting system.
Closing Accounting Periods
QuickBooks does not require businesses to close accounting periods, but businesses should consider performing a formal month-end and year-end closing process. By closing accounting periods, you ensure the accuracy of your financial statements and the information given to a tax accountant. When performed correctly, month-end or year-end closings prevent changes from being made to accounts. No one can go back and change a transaction or delete a deposit if closed periods are password protected.
QuickBook professionals do the following when performing a formal close:
- Make sure all outstanding invoices, payments, and expenses are entered for the period.
- Reconcile accounts, including bank, credit card, and loans.
- Enter adjusting entries where necessary.
- Compare actual to recorded inventory balances.
- Reviews financial statements for possible discrepancies.
Once the accuracy of the accounts is confirmed, the books are closed. The longer a business goes between closings the harder it becomes to trace a discrepancy, especially when it impacts tax preparation. Do you want to pay your accountant to track down an accounting error?
Maintaining a Chart of Accounts
QuickBooks comes with a chart of accounts (COA) that most people follow without understanding why. However, the COA impacts financial statements that are used by investors and financial institutions to assess the health of a company. A well-organized chart of accounts makes it easier for business owners to monitor the company’s financial health.
Accounts and sub accounts can be added or deleted at any time. Creating more accounts can increase the complexity of financial statements, so it’s essential that companies understand when a new account is absolutely necessary. It is possible to merge accounts if it is determined that one is not needed. The data in the two accounts may impact financial or income statements after they are merged.
However, merging and deleting accounts impact the data available for producing reports. In QuickBooks, deleting means setting an account to inactive, so the data is no longer used to generate reports. That’s why professionals recommend waiting until month-end before making adjustments to accounts. The process ensures the accuracy of the data for the period when the account was active.
Producing Financial Statements
Applying for a business loan or looking for investors requires solid financial statements. If the data is not maintained in QuickBooks, businesses will have to spend hours — maybe days — bringing QuickBooks up to date and correcting discrepancies. Using professionals ensures that the information is accurate at all times, making it possible to deliver sound financial statements at a moment’s notice. When looking for funding, can you afford to wait days to get financials in order?
Those same financial reports are used by accountants as a starting point for assessing financial health and preparing taxes. If the statements look misaligned, they will investigate to determine where the discrepancies occurred. If your books are not up-to-date, it can take hours to find the errors and make the correcting entries.
Using QuickBook professionals to handle your bookkeeping reduces the chance of errors going undetected for months, resulting in added costs for finding and correcting the mistakes. Professionals can save you time and money that could be better spent growing your business.