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How to fix the small business accounting fiasco

August 12, 2014

The IRS has long known that small business record-keeping is so bad that if all of these tax returns were audited, more than half of 401(k) plans would be disqualified. At a recent CPA convention, a speaker noted that he had not yet heard of a firm that could meet the IRS requirements to qualify for the small business health insurance tax credit. Instead, the focus on addressing the symptoms – deficiency notices, penalties, complaints and lawsuits. Accountants know that small business and non-profit records are a mess but that these clients are not willing to pay an accountant to fix the problem just to satisfy the government or their bank. We continue to operate in a state of denial or ignorance of the impact of our sloppy work. Meanwhile, hidden from view, overall business performance suffers.

What is the solution? How could small business owners be convinced that it in their best interest to keep better records? The answer may simply be in demonstrating that better accounting is directly linked to improved performance and increased profits. As soon as business managers view accurate data as a tool to their success the resistance evaporates and accurate accounting becomes a core part of the organization’s mission. Even one person businesses routine gain transformational insights simply by having more reliable information about the details of their own operations.

Examples are everywhere. One unprofitable retail firm came to me for help in late 2012. I suspected internal theft but the owner did not. Within months of upgrading their record keeping system the store swung back into profitability and continues to improve with better inventory management, pricing policy and purchase management almost a year later.

Another business performed services for online insurance agencies. It relied on data provided by third party Internet service providers but was having trouble reaching the performance levels of earlier periods. By adding an additional layer of management review of data we quickly discovered that they were not receiving credit for some of the business they processed.

How could better information and internal performance data improve your results? As soon as this possibility becomes clear the steps to improve record keeping and management reporting follow naturally. Accountants who take the extra time to show clients how to transition the accounting function from an expense to an investment in future profitability are doing their clients an enormous service. Tomorrow’s cloud-based small business accounting systems lend themselves to this role while allowing efficient data analysis and cross-platform application to extract maximum value with minimal effort.

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  1. Lena Lean permalink

    What i like to know is what the cost will be for online booking and the accounting side

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