Simplify to Succeed
Since this is tax season, many business owners ask if Intuit’s Quickbooks is the easy way to complete the ongoing bookkeeping chore. Much to people’s surprise, AAIME’s answer is “No”. If your business did not gross at lease $500,000 last year, you really don’t need Quickbooks. Here’s why.
There are two reasons why businesses should keep records. One is to keep track of the business’ income and expenses. Money and inventory can get away if you don’t keep track of it. If you don’t keep good records and have employees, then you are inviting theft. Even if you have no employees, it’s impossible to plan for the future if you don’t know where you’ve been, or where you are now.
The other reason why you must keep good records is to protect yourself against a Government audit. While just about everyone is aware of the I.R.S., you can be audited by a variety of other Government entities and agencies. If you have employees you must even complete a yearly Workman’s Comp insurance audit! It is impossible to pass an audit if you have no or incomplete business records.
But if you have sales that are less than $500,000 per year, you don’t need Quickbooks. Because when you are a very small business and use Quickbooks you can get lulled into a false sense of security.
That’s because passing an audit requires substantiation. Substantiation means an impartial third party supporting your business deduction claim(s). For example, the only thing stopping you from paying Federal and State taxes on every penny your business earns is the money you spend on business deductions to make that income.
In other words, the purpose of bookkeeping is to record all the money you spent to make business income. The money you spent on business deductions reduces your total income in order to lower your tax bite.
What many people don’t understand and what the Quickbooks advertising doesn’t tell you is whether you write a number in a notebook or record it in Quickbooks, that number means nothing without substantiation. If there is no receipt, invoice, cancelled check or entry on a bank statement to back up your claim that money spent was a business deduction, your deduction carries no weight and can be disallowed upon audit examination.
Many businesses each year are closed by the I.R.S. because they cannot prove their business deductions. There’s no way to know how many of those closed businesses used Quickbooks, but the bottom line is, using Quickbooks does NOT replace substantiating your business deductions and keeping good records.
That’s why if you have a small business making less than $500,000 per year, don’t depend on Quickbooks. Learn how to keep good records first. One of the reasons your business is small is so you can have time to learn what you need to know. After you grow big it’s too late.
Look at it like a child learning to walk. One reason why we all learned to walk at a very young age is so we could fall down without hurting ourselves. Just think of the problems we would run into if we learned to walk only after we were older!
A big mistake small business owners make that puts many of them out of business, is that they concentrate solely on making money. They assume that bookkeeping and accounting only makes sense after they are successful.
They look for shortcuts and grasp onto heavily advertised products such as Quickbooks instead of learning how to protect their hard earned money. What these business owners don’t understand is that making money and keeping it are two sides of the same coin. If all you do is make money and don’t learn how to keep it, you are just asking for trouble.
Keeping good records must be learned. Call AAIME for help. We will help you one-on-one so you completely understand. It’s part of your Free consulting. If you need help with piles of receipts or other paperwork, cost is only $45 per hour.
Once you know what you are doing and how to do it, then Quickbooks is fine as a labor saving device. But labor saving software is all Quickbooks is. It won’t make your business audit proof or protect your business from penalties and interest. If you are in business to succeed for the long run, simplify your life and save your money.