Traditionally, small business owners think about these choices when it comes to preparing financial statements:
- Ignore it and pretend it will go away.
- Find software and do it themselves.
- Have family member or friend do it for free.
- Bring your Accountant a shoe box at the end of the year.
Hopefully it’s obvious that none of these options are recommended. Here is why:
- Ignoring it will not make it go away and it will turn into a monster. This monster could easily grow big enough to actually kill your business.
- You will spend time doing what you likely hate to do, rather than doing what you love to do. This will become stressful and drain your energy. Also, you likely do not have the skill set to find your mistakes and know how to fix them. Inaccurate financial reports are dangerous in that they could put you in the wrong direction and at risk for errors on your tax returns.
- Being decent with numbers does not make someone qualified to do bookkeeping. “Free” can very easily turn into a huge cost by way of interest and penalties to the government, stress and poor business decisions based on inaccurate, or lack of, information.
- Realistically, it is often not feasible to produce accurate reports for tax purposes at this stage and the Accountant makes a best guess. Also, the risk for business failure is high because the business owner is making uninformed business decisions.
A better approach for small business consists of a more regular, professionally prepared process:
- Find a trained bookkeeper, who is also supported by an Operational Accountant, to complete monthly bookkeeping tasks.
- The monthly reports prepared by the bookkeeper are reviewed by an Operational Accountant for accuracy, and errors are fixed as they arise.
- The Operational Accountant helps the small business owner understand the monthly financial reports by looking at the reports in detail, together.