During this week’s Small Business Owners Mastermind call, we had a meaningful conversation about finance, accounting, and bookkeeping.
If you had to read a book to start a business and be successful, you would probably never start a business because I don’t think there is enough shelf life to read all the books on how you need to build a business and anything that can happen.
Business is one of those things where you have an idea that looks good. Is there a need in the market for that idea? Am I passionate about that idea? Am I willing to help others, and the more people you help, the more money you will make and the more successful you will be? So if I had known then what I know now, you know, but hindsight is obvious.
But I’ll tell you this is one area of business where I see most small business owners getting lazy to including myself.
All it takes is one thing in your accounting and your bookkeeping for that IRS person to leave, you know what? I think we need the last 12 months of bank statements, and you know what, why don’t we go ahead and look at the previous year? And, and then all of a sudden another letter comes out that says, You know what, I think we’re going to go ahead and look at the previous year before that.
My personal experience
I remember the letter I got in 2005. And it was like, hey, we want to audit your mileage, because it’s always one thing, they want to audit one item or a couple of things. And so I sent him the document, and he says, Well, we’re going to need to see your bank statements. And I go, now being transparent here, because I don’t care. It is as if you have to share your good and you are wrong to help someone. And it wasn’t for you to know, I sent the bank statements, and he said, Hey,
What are all these $ 100 deposits? I’m like, what are you talking about? And he goes, and what happened was that my wife at that time had a friend of hers who was cleaning her house. And she was paid $ 100 a week, and I told her not to deposit that money. Well. But he did it anyway.
They did not make me an accounting of my finances, which now seems to them. Like, I’m just telling you that. It’s like, Oh, Cindy says: Hey, you know what? We need the bank statements for 2003. And by the way, why don’t you send us the statements for 2002? And when all was said and done, I think it was like; I don’t know, it’s just $ 9,000 in revenue from this little side business. That was not adequately documented. That was what came into the ownership of the accounting system. He says that I, the otter, was right; it shouldn’t have any other business setup.
But instead, I didn’t. And this is the number one thing these small business owners go through all the time; they take their business account, they take their business income, personal income, they combine it into one account.
Round of Questions with Lisa
Q: How many times a year has she done well searching? How many times does she hire a new small business owner and combine her personal and business income?
L: How many times? I will say probably 95 95%. Yep.
Q: From an accounting standpoint, what do I need to help as a small business owner? How do I structure my filing system? How should I structure, you know, the inputs and outputs?
L: There are different programs, some accounting services. So for example, if you are doing it yourself, you can use Excel and just keep track of all your expenses compared to your income, because that’s one of the most important things because, at the end of the year, one would come down to When filing taxes, we need to know exactly how much you entered and how much you spent. That’s one of the things. If you do it in QuickBooks, let’s say I run that program, for example, then you connect your bank, and everything automatically flows, to QuickBooks, with all your expenses. The next thing you have to do is appropriately categorize what those expenses are.
That way, we can itemize it on our tax return at the end of the year. On top of that, every month, we want to see where our money is going. That’s one, that’s the second thing.
Then the other thing, from an accountant’s point of view, we need to reconcile that column, basically pulling our bank statement, looking in our software, let’s say it’s QuickBooks Excel, or whatever. And we are looking at the final balance. And that’s one of the most important things because if you are ever audited, your books must be the same as what is in your bank; every month, we need to have precisely the same amount of the ending balance to have the books the Bank. That’s one of the first things they look at one day if they somehow audit you.
Q: I have worked with many accountants over the years. One of the everyday things that I regularly encounter when someone approaches you, a small business owner, has been mildly successful in doing any accounting. And then what they do comes to you with their two or three shoe boxes; they play with their statements and receipts, and all that. How common is that?
L: It’s very common, and I would say many times, I mean, that in the last three months, there were situations where I had to close someone else’s previous books and had to start over. That’s how messy it was. There were many receipts; it was just that everything was lost for, I would say, a period of five years, so I had to do a cleanup worth five years of work. That was hard enough, but I love facing those challenges. And when we are all straightened out now and ready to move on and 2021 2022.
Q: What are some of the top 10 things or five things you would say to a business owner who has to say all the time and scratches their head? Like, why don’t they know this?
L: I’d say the first thing to do is keep track of your receipts. That’s one of the things. The second thing would be to continue educating yourself. Even if you are a business owner, you should continually educate yourself on current tax laws on the things you should be thinking about as a business owner, and the terms of our opinion, books, in terms of taxes, etc. . The third thing would always be to stay the course. If you need help, contact someone who knows how to do certain things. Do not think that you can put it aside; it is never a good time. Because the longer you wait, the bigger problem and the fourth thing I would say is keeping track of your income. That’s another thing. Because also, if you keep track of expenses, you always have to look at the revenue? What am I doing? How can I improve my company? Always think about that. And the fifth thing I would recommend is that John is a great business doctor who can help someone like me or anyone else in the consulting business. Therefore, whenever he needs help expanding his business, he should always ask for it.
Q: What are the five things that have to exist on a receipt for it to be a deduction?
L: Now they’re saying that my other companies are doing that I’m doing books for they’re a pretty large company. And they bought them because they got a lot of checks. And they have a lot of invoices; they purchased a scan checker. So what they do like the check scanner, I’m sorry. So they’re like, well, they’re checks in, and it’s automatically uploaded on it. So it’s kind of the same thing as like, you know, the other apps on your iPhone, but like, oh, that company gets about like 100 250 checks a day. So as soon as they run it through that machine, it goes straight to QuickBooks, and the accountants account for those invoices.
It makes it super easy to see, and it’s already on there. I can see all of those open invoices, then, after all, I go and match them up. And then all the info is in there. So we know we’re right. That’s another thing. But I would suggest that for a bigger company, I would say not necessarily for a smaller company. But those that have about, I would say, 50 to 100 open invoices; they should be running that that’s an actual very cool thing, it helps you out.
Final Tips
If you are a small business owner, you can indeed say: I’ve been doing great in every way. You know that I’ve been I’m making $ 3 million, man with no accounting whatsoever, without any control or balance. And we are great. You are great until the problem happens. And what you don’t want to happen is you get a letter from the IR, and they say, Hey, we want to audit your 2020 and 19 returns. And then, all of a sudden, you come back. Oh, shoot.
Well, here are the returns. Well, we want the receipts for these receipts. What do you mean by tickets? Do we want? We want your mileage log for this mileage log. You know, my neighbor Joe told me that he didn’t have to keep a mileage log. Okay, this kind of shit happens all the time.
I’m tired of running into business owner after business owner after business owner who has to received bad advice from his friend Joe or his neighbor. You know, Sally who, who’s an expert on nothing. Well, if he thinks spending the four or five $ 600,000 a month on bookkeeping and account control is too much. And here is my advice to get you out of business. Okay, that rooster will come home to rest at some point. And what you don’t want is to be in a situation where it not only affects you but your family and the lives of the people you employ. So I can’t tell you how strong I feel for sharing such important information.
