The visible costs of Payroll and Bookkeeping can be truly daunting. These two areas have been the bane of many small business owner. The visible costs include not just the cost of the service, but also the cost of not doing it right. All too often, the small business owner gets into tax trouble because of their books. They cannot file a timely return, or files an inaccurate one, and winds up with heavy tax penalties. Or perhaps he has tens of thousands of dollars of perfectly legitimate expenses disallowed because his bookkeeping did not support them.
Payroll can be even worse. The penalties for not forwarding payroll taxes are brutal. Every small businessman has heard these horror stories. The vigor of the IRS in pursuing unpaid Payroll Tax and the penalties exacted make routine IRS collection activities seem tame.
With visible costs like this, it is no wonder that Small Business owner turns to QuickBooks. It seems that you cannot even watch a sporting event on TV, without seeing a QuickBooks ad. How can he be safe and run his business without adequate bookkeeping and payroll? Well he can’t. For many small business owner, QuickBooks seems the answer. Their business is small, and they are or become adept at bookkeeping and payroll using Quikbooks or similar software. They can monitor their income and expenses, file their taxes, and carry on their business.
But what then are the hidden costs?
I will illustrate this by example, one businessman had built a small business grossing about $1.5 million dollars a year. He brought all his QuickBooks and bank and tax data in to our firm to do his taxes, and it was a mess. His tax return could not be filed without extensive bookkeeping, which he paid for. This cost is visible. Where then is the hidden cost?
He had spent 2-3 hours a day all year working on his books. He was the creator and production manager of his business, and had plenty of work to do. But he spent this daily time on his books, and he knew it was important. What did this cost his business? Probably $300,000 in lost income. When he was handling the production and sales of his firm, income flowed in.
What did he get for all this book work? Bad Books.
He even had a secretary who could have been trained up to handle the books.
The hidden cost of bookkeeping and payroll is two-fold:
- The income not generated because the owner or key manager is doing books or payroll when he could be running the business to make income.
- The profit lost because the bookkeeping is inadequate and the manager does not see exactly what is making money, and what is losing money, and thus cannot take appropriate informed actions to increase profits.
The visible costs can be high enough. Paying the bookkeeper or paying the IRS because of bad bookkeeping or payroll is easily, if painfully, visible. For some, the hidden costs may be small. Maybe you enjoy doing bookkeeping and payroll, and keep your records spiffy and up-to-date in just a few minutes per day (you know, like the guys and gals in the QuickBooks TV Ads). Maybe this does not affect your firm’s income at all.
However, if you make the business run and the income flow in, and are not a great bookkeeper, this hidden cost may be killing you. Your time might be better spent in making more money for the firm, or hanging out with the family.
What to do?
If you have any questions or need any bookkeeping or tax assistance contact Torchlight Tax for a free consultation. We are a tax firm, but we cannot do taxes when when poor bookkeeping obscures the income and expenses of a person or company. So we must be bookkeeping experts as well. No matter how bad your records are something can be done about it. It is far less expensive to pay the bookkeeper to get your books in order than to pay the IRS with bad books.
As the tax deadline approaches, contact us ASAP. We can still file for a tax extension for your C-Corp or sole proprietorship while we get your books in order so we can do your taxes.
SAVE MONEY BY DOING YOUR TAXES THE RIGHT WAY!