Read Time: 2 to 4 mins.
Running a business means that you quickly learn that there’s a lot of bs that you have to learn and deal with in a very short amount of time. The number one issue that your going to hate is accounting and taxation. You hate both and by extension you’ll probably hate your accountant too. (Yes I am an accountant)
There are 3 fundamental checks for any entrepreneur
Check Daily
Have you recorded your revenues/sales/invoices?
Revenues must be recorded daily, when the transaction occurs because it could have serious effects on your taxes at the end of the year. Ex: Improperly recorded sales after the period of $1,000 dollars is an additional tax of $350 dollars. Imagine the tax when the improperly recorded sales grows ($100,000 dollars = $35,000 dollars in additional taxes).
Have you recorded your expenses/bills/purchases?
Same concept as above, improperly recorded expenses means that you’re losing a tax deduction. If you improperly enter an expense of $1,000 into the wrong period, then you pay $350 dollars in additional taxes due to lost deductions.
Have you recorded the collection of cash?
It’s important to know how much cash you have because without cash, your business is dead. Cash is king and every entrepreneur knows that the value of cold hard cash is very different from “imaginary paper profits.” The value of cash is always assured.
Check Monthly
Have you reconciled your bank accounts?
Your books have to match your bank statements because your books are supposed to be an accurate representation of your current financial position. The bank statement will have differences due to bank fees (Due to bounced check, insufficient funds and etc) and interest (Due to the bank paying you for letting them hold your money). You won’t know about these changes in your bank accounts until you receive the monthly bank statement, so you must adjust your books to match the real amount that should be in your bank accounts. Books and records that don’t reflect your actual financial position are useless. It’s similar to reading a map that’s upside down and 10 years old.
Check Annually
Have you closed your books? (Have you yelled at your accountant yet?)
Closing entries vary depending on the type of business that you’d be operating. The basic entries that everyone has are amortization (the use of intangible assets such as copyrights, patents and trademarks) and depreciation (the use of tangible assets such as computers, cars and desks). Generally, I’d suggest you yell at your accountant to do this for you because you’d probably get this stuff wrong from years of experience.
Note: If you’ve hired an accountant to prepare your taxes or in general, make sure that they have actually applied the year-end closing entries and adjustments to the books. A pet peeve of mine is that accountants will often apply the changes to the tax return but fail to transfer the adjustments into YOUR BOOKS. This leaves your taxes done correctly, but your books will be a mess and continue to be a cluster f-bomb.