Business Bookkeeping The Magical Ingredient To Your Tax Savings

Years ago, a local radio news station called to interview me about how people can save money on taxes. I remember the conversation to this day and uttering the words, “This is not the answer that most people want to hear, and this is not the sexy answer, but the magical ingredient in the recipe of tax savings is record keeping!"

When they asked what I meant, I spoke about the value of knowing your numbers, optimizing your deductions, and tracking your income and expenses for accurate reporting.

Bookkeeping and record keeping are not sexy. They're not fun, and most business owners dread them. However, an incredible power is unlocked for tax savings when a business owner invests in keeping their numbers current.

More Than Just Checking The Box

Keeping your numbers current and organized isn't just about checking the box on another task in the dog pile of tasks; it's about setting your business up for success.

Imagine making business decisions with complete confidence, knowing your financial health inside and out. Consistent bookkeeping makes this possible, providing a clear picture that's essential for your day-to-day operations and when planning and implementing strategies to reduce your tax burden.

Getting Organized: A Key Pillar in the CLEAR EDGE Framework

The Make Taxes Fair CLEAR EDGE Framework explains how tax savings are achieved by managing the various pillars of tax strategy and planning. The Getting Organized pillar is critical to achieving and maintaining tax savings.

The benefits of keeping your numbers current are many and include...

Budgeting and Planning

As Benjamin Franklin said, “By failing to prepare, you are preparing to fail.” Bookkeeping provides the financial data to create accurate budgets and plans. Keeping accurate financial records removes the guesswork from the equation and gives you actual numbers to base budgets and plans.

This information becomes more profound and more valuable the longer you stay on top of your data, and the ability to identify trends, seasonality, and opportunities can be identified by examining your numbers.

Decision Making & Financial Control

Most business decisions involve finances as you seek to grow and scale your revenue and business operations. Regular bookkeeping gives you a clear view of where every penny is going, enabling informed decision-making that can make or break your business. Making confidential decisions based on facts rather than guesswork elevates your confidence. 

Cash Flow Management

Cash flow management monitors how money moves in and out of your business. Understanding this flow of capital is crucial to making management decisions.

Tax Compliance and Strategy

Accurate records are essential for correct tax filings. Precise numbers are even more critical for leveraging a tax strategy. Without knowing your true profitability, it's difficult to nail down the appropriate tax strategies that are the optimal fit for your business.

The real value of bookkeeping lies far beyond the “compliance” factor and opens doors for proper strategic planning to reduce your tax liabilities massively.

Audits and Reviews

No one has a crystal ball, and the reality is that the IRS or other government agencies can audit your business at any time. Having your books and records organized and in order can prevent massive headaches.

Proper bookkeeping ensures you have the records to back up your tax filings, protecting your business from penalties. The old saying, “An ounce of prevention is worth a pound of cure,” makes sense here.

Legal Compliance

Bookkeeping is also about legal compliance. If you've created an entity (an LLC or a Corporation), keeping accurate financial records ensures you meet regulatory requirements to separate your business from your personal. It also helps your image as a company when you diligently maintain your books and records.

Even though your particular company may be "small” compared to the Fortune 100 giants like Google, Amazon, or Walmart, you can practice the same discipline as those significant players in the business arena by being organized and setting yourself up to avoid fines and legal trouble that can disrupt your business operations.

Business Valuation

Clean and organized records are crucial when selling or expanding your business. Clean, accurate books reflect well on your business, increasing its value and appeal to potential buyers, investors, or lenders.

Accountability & Transparency

Bookkeeping also helps keep you and your team accountable. Properly maintained financial records that are regularly reviewed will reduce opportunities for economic mismanagement, embezzlement, theft, and fraud.

Record keeping is another safeguard against hemorrhaging money and resources due to these draining factors, and the discipline of keeping your business clean, organized, and current in its financials will lead to other areas of discipline within the ranks of your business.

Succession Planning

Bookkeeping can play a role in succession planning, helping new leadership understand the business's financial health and have the tools and metrics to stay the course and grow.

Knowing your numbers can also support you in the economic aspect of promoting from within, ensuring you can afford new salaries and maintain operations without disruption.

The Highest and Best Use of Your Time: Don’t Be Your Bookkeeper

As a business owner, time is one of your most valuable assets. The highest and best use of your time is growing your business, nurturing client relationships, and driving strategic initiatives—not getting bogged down in the day-to-day details of bookkeeping.

For this reason, we recommend that you outsource the bookkeeping function (either internally or externally) to remove yourself from the nuts-and-bolts technician role and instead assume a supervisory role.

Here’s why you should consider bringing in a professional:

• Expertise in Classification and Organization: A professional bookkeeper properly classifies and organizes your financial data, ensuring every transaction is accurately recorded. This expertise reduces errors and keeps your financial records in top shape, setting the stage for optimized tax planning.
• Proactive Tax Strategies: A professional bookkeeper can help you implement proactive tax strategies by understanding and utilizing your financial data. Improper bookkeeping can lead to thousands of dollars in tax overpayments annually. Professionals ensure your books reflect the accurate financial picture, allowing for strategic tax planning that minimizes tax liabilities.
• Saving Time and Reducing Stress: Delegating bookkeeping tasks frees up your schedule, allowing you to focus on what you do best—running your business. The relief from knowing your books are in expert hands can't be overstated. It's one less thing to worry about, leaving you with the mental bandwidth to tackle higher-level business challenges.
• A Hands-On Onboarding Process: We believe in a hands-on approach during the first 3-6 months of onboarding a professional bookkeeper (or any professional). This transition period is critical for setting expectations, fine-tuning processes, and ensuring no details are overlooked. Being involved early on can establish a strong working relationship and set your bookkeeper up for long-term success in organizing your finances.

Monthly Bookkeeping Best Practices

Staying on top of your books doesn't have to be overwhelming. Here are some simple steps to make monthly bookkeeping a breeze.

Set a Routine

Consistency is crucial. Set aside dedicated time each month to spend on your bookkeeping. Treat it like a business meeting—non-negotiable and essential to your success. Even if you outsource your bookkeeping function, you will still need to spend time and energy on this to ensure that things are being done, dig into the data to understand your numbers, and review the financial health of your business.

Use Technology

Leverage bookkeeping software to automate repetitive tasks, categorize expenses, and sync your bank accounts. This not only saves time but also reduces the chance of manual errors.

Some business owners fear technology and fail to realize the benefits of time savings from the automation of these mundane tasks. Reclaim your time and leverage the technology at your disposal.

Reconcile Regularly

Make it a habit to reconcile your bank accounts and credit cards monthly. This not only ensures accuracy but can also help catch discrepancies like fraudulent transactions early on, saving your business significant amounts of money. It can also help you review and trim unnecessary expenses for subscriptions or services you no longer need or use and stop paying for those things.

Review and Adjust

Don’t just update your books and forget about them. Regularly review your financial reports to spot trends, adjust your strategies, and ensure your business is on track to meet its goals. 

Our Final Thoughts

A wise person once said, “What gets inspected gets respected!” While this could easily be dismissed as superficial or cliche, it's profound. It's even more profound when connected to your bookkeeping and business organization. Being disciplined in consistent bookkeeping and organization isn’t merely a chore; it is a disciplined approach to a powerfully strategic tool that keeps your business organized and optimized, especially when it comes to tax planning. 

By keeping your numbers current and organized, you're not just preparing for tax season but empowering your business to make better decisions year-round. And remember, the highest and best use of your time is spent growing and managing your business. 

In my experience, sometimes the most challenging words to say are "I need help." This is especially true for the driven entrepreneur and busy business owner. But when you can release this task to a professional and enlist the aid of a focused person who manages this one aspect of your business, you will gain back time and energy that can be used to focus on other areas and relieve stress and a burden from you.

This will allow you to spend that energy in different areas of your life and business. Who knows? Maybe that time will be spent on revenue-generating activities for your business. Maybe it will be spent with family, just connecting and creating memories, as you have an opportunity to be a more present, less distracted father, mother, brother, sister, spouse, or partner. Or maybe you'll finally be able to take that coveted nap that you desperately need to recharge the batteries.

The choice is yours: stay bogged down in attempting to micro-manage the process or level up your business and life and engage a professional to assist you in this critical area of your business. If you need a recommendation for a bookkeeping service, let us know. We partner with several amazing folks who have been instrumental in serving our clients. If you have a question, reach out and start a conversation!

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