Less than two weeks away from the tax filing deadline, many small businesses are scurrying to get their financials in order. Some are shuffling though paper, checking old e-mails for receipts and vowing to be more organized next year. Others are relying on their accountant to make sense of the mess and put their taxes together — like pulling a rabbit out of a hat.
The number one mistake that small businesses make is that owners don’t have ongoing insight into their finances throughout the year — which is why just days away from tax deadline, there are thousands of small businesses in a state of panic.
Talk to any small business and they’ll likely tell you that doing their accounting ranks just above taking out the trash. The word debit or credit makes them think back to high school and that vapid teacher who explained t-accounts like it was the best Greek invention of all time.
A lot of the distaste for accounting comes from poorly designed software that doesn’t “think like a small business thinks.” The good news is that there are accounting software manufacturers out there that focus on usability, design and automate a lot of the grunt work.
The second biggest mistake is that small businesses only talk to their accountant at tax time. Many accountants think contact with a small business should be weekly — yes, that’s 52 times a year. But that contact doesn’t have to be in the flesh. The old way of client accounting sometimes required an office visit to collect paper receipts and desktop files — not an effective use of time.
With accounting software available over the Internet, much of the elementary bookkeeping work can now be automated and/or done remotely. Each of those client contact touch-points can be as simple as a comment or note attached to a certain piece of financial data. The small business owner can immediately view the comment or note on his or her iPad wherever they are. Key business decisions can be made long before tax time.
Many accountants believe that having real-time access into their small business client’s financials would help enable them to provide better advice. Better advice throughout the year leads to better results at tax time. Imagine a clearer picture into the last quarter or month before tax time. Realizing your profit is healthier than expected means you can afford that new equipment sooner than you thought. So why not bring that purchase forward into the current year to reduce your income tax. Real-time insight lets you act on opportunities that can save tens of thousands of dollars.
Using online software to streamline bookkeeping tasks frees up the accountant to provide more constructive, proactive advice to small business such as tax minimization strategies, budgeting and cash flow forecasting. Add mobile and the anywhere, anytime access on a range of devices and you’re starting to love accounting a little more.
Here’s what you can do to prepare for next year:
●Keep a log of your expenses. Better yet, use accounting software and mobile expense systems that automatically upload a photo of receipts directly into your accounting system.
● Don’t use payroll taxes withheld from employees to finance operations. Create a separate account and keep these here.
●Get an accounting system with simple dashboards so you can see your business in real-time.
●Take advantage of automated banking feeds that appear directly in your accounting system to save doing data entry.
●Engage an accountant and ask for help.
Jamie Sutherland is president, U.S. operations, of Xero , a San Francisco-based provider of online accounting software for small businesses.