While you can do your own accounting, does that mean you should? We don’t think you should unless you’re just getting started and have a very limited budget.
At CSI Accounting & Payroll, we’ve worked with small business accounting for over 50 years. While that might make us sound biased, it also qualifies us to talk about the problems with doing your own business accounting:
- Limited value
- Run-on bookkeeping mistakes
- Penalties
- Incorrect financial statements
- No audit protection
- Poor use of time
Limited Value
When you work with an expert – especially year-round – you get your money’s worth.
Accounting is often treated as something that can’t be changed - just done correctly or incorrectly. That’s not necessarily true; it’s also an opportunity to reduce your tax liability and strategize your decision-making throughout the year.
If you forego this expert guidance by doing your own accounting, you miss out on potential tax savings and growth opportunities for your business.
Run-on Bookkeeping Mistakes
It’s no secret that bookkeeping numbers build on themselves. If your books were wrong in January, they’re still going to be wrong in December if they weren’t fixed right away.
Not to mention, it’s really easy to fall behind on bookkeeping when you do it yourself. Then you have to pick up right where you left off instead of working on the current month. If you can't handle it now, imagine what it will be like in a few months.
Penalties
Whether you make a mistake or fall behind on taxes, you will be facing penalties.
If you miss the tax filing deadline, then you can expect a failure-to-file penalty. There is also a failure-to-pay penalty that goes hand-in-hand with the failure-to-file penalty if you owe money.
While filing for an extension helps, you might find yourself wondering if you’d have to do that if you worked with a great accountant.
Incorrect Financial Statements
It’s no secret that financial statements can help guide business decisions. When monthly statements are paired with an expert’s advice, you can see trends and blind spots.
However, financial statements can only help you if they’re correct. Here are some common red flags on financial statements that will likely occur if you make your own financial statements from your own bookkeeping.
Negative Balances
This is by far the most common red flag, and it’s very likely an error. For example, a negative loan balance would mean that you overpaid a loan.
Shareholder Loans
Also called an officer loan, a shareholder loan is a loan between a business and one of the owners. There must be a loan agreement, just as a loan with a bank would have.
Usually, someone loans personal money to their business. If these are treated like loans between two unrelated parties, they’re perfectly fine.
Sometimes a business also loans money to a shareholder. The IRS is skeptical of this because it usually means you’ve taken more money out of your business than profits would allow. If not handled correctly, this can become taxable income to the shareholder.
Balance Sheet Income Doesn't Match Profit & Loss Statement Income
These statements show assets and liabilities and how equity balances them. They show your ability to pay off your debt. The numbers indicating income on each statement should be exactly the same.
"Forced Total", "Suspense", and "Clearing Account"
While these titles aren't uncommon, they’re intended to be temporary accounts used during the month to adjust balances in your financial statements. They should zero at the end of every month.
Large Miscellaneous Expense Account
If you have this, you're more likely to throw up red flags. Where did this number come from, and why couldn't it be categorized elsewhere in your financial statements?
No Audit Protection
Audits can be triggered by mistakes, but they also happen at random. Audits take a lot of time and effort, and they’re very stressful!
Luckily, if you partner with an accountant, they can take the pressure off of you. Some accountants offer audit support or even certify your books are “audit-proof” (aside from random audits).
If you do your own accounting, you can make mistakes that trigger audits. Plus, you’re on your own whenever the random ones come around.
Poor Use of Time
As a small business owner, your time is already limited because of your responsibilities. That also means limited time outside of work if you take on more than you can handle during work hours.
Why would you bog yourself down more by doing your own accounting? It takes even longer if you don’t have an accounting background.
You could be paying an accountant for fewer hours at a lower rate than what your time is worth. Other accountants have a fixed, monthly fee that is also a much better value.
Plus, when your expertise is in your business, that’s where your time is most valuable. How much could you grow your business’s profitability if you had more free time to brainstorm, plan, and execute?
Avoid Accounting Problems by Using a Service
Now that you know about the limited value, run-on mistakes, penalties, incorrect statements, audit responsibility, and poor use of time that can happen when you do your own accounting, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about the cost of monthly accounting by clicking the image below:
