Covid-19 had a devastating effect on all of us. It was responsible for the deaths of millions of people by the end of 2020. It also brought havoc on most enterprises. Many entrepreneurs are still struggling. Although their revenues may have been marginally better than 2020, the numbers have not gone back to the pre-pandemic level. It is not surprising that some business owners have cut back on some non-essential items.
With that in mind, is it wise to work on your books? Creating your income tax returns seems to be a prudent business decision. There is no one better to work on them than you, the owner of the establishment. Before you tackle this tedious undertaking, why don’t you take a minute and take note of the reasons why this action is not sensible? Let us study the different factors.
Your tax accountant was trained to deal with numbers. They know which cost is an expense or an asset. They are equipped with the knowledge on which cash inflow is revenue and which one is unearned income. Working on your accounting books could lead to errors that the government could label as materially inaccurate. For example, you received $10000 from a client for a service to be rendered in the future.
A properly trained accountant would consider this cash inflow as a liability because you still have to carry out your part of the bargain. On the other hand, you will most likely consider this as revenue. This will leave your revenue overstated while your liability understated.
This error may not have such a profound effect if you can work on your part of the contract within the accounting cycle. But if the contract was to be carried out in several years, the mistake will have a huge impact on your liquidity because you will have to pay for taxes when there was no need.
Let us delve further into the earlier example. As one of the leading PCB companies, you were asked to create a circuit board prototype for your client in exchange for $10000. Understanding the complexities of the process, you negotiated that you would present a model after two weeks. For illustration purposes, let us assume that the day that your client gave you the $10000 was the last day of the accounting cycle for Year A. You finished the prototype in the first two weeks of Year B.
Not knowing the proper accounting treatment of the money given, you considered it revenue instead of a liability. If you treat all cash sales as immediate revenue, your financial statements will be considered materially inaccurate. You can be penalized because of this.
You would have heard the new tax laws. But do you know how to implement them? Another question is whether you are qualified for the incentives that it offers.
Allowing a tax accountant to work on your returns will ensure that this tax provision is correctly applied. Although you might have heard the news and read the literature on the 2017 tax cut, it is unlikely that you understand the intricate details of the law. This may lead to an erroneous application. It will eventually cause hefty fines levied by the government.
As an entrepreneur, would you rather not spend your time refining your operational processes? Or if you were a baker, would it make more sense to work on a delicious new creation instead of getting yourself cross-eyed with the numbers?
Delegating the bookkeeping task to your accountant would help you focus on more important matters. You can work on improving your processes to eliminate waste. Or you can concentrate on how to attract more customers. A wise man once said, “Time is gold.” You might want to take a leaf out of his book and focus on the things that matter.
When you hire a tax accountant, you benefit from their knowledge of an organization’s usual financial pitfalls. As they study your books, they will see the risks that your organization is exposed to. With such an insight, they can design internal controls that can negate these risks. With their oversight, they can continue to improve on the existing system to prevent future economic catastrophe. They can prevent the theft of physical inventory and intangible assets.
A good example would be your company’s physical inventory. Your accountant can determine if your current process is vulnerable to manipulation, which can lead to theft. They can step in and create a process where there is check and balance. If the new procedure does not remedy your vulnerability, then they will present a new system. They will continue until your organization is no longer exposed to such dangers.
You can still be coping with the disastrous effects of Covid-19 on your business. But cutting back on professional accounting services is not a prudent move. On the contrary, it could lead to huge expenses.
Their knowledge is not limited to the creation of supplementary documents for your income tax return. But you can also ask them to create a sales forecast. This estimate will help you cut back waste in your operations. Thus, it will lead to more profit. In the long run, their services can be precious for you and your organization.