by Dave Horwedel, CEO of Torchlight Tax.
Most business owners think of bookkeeping as an expense.
But if you use it correctly, your bookkeeper or accountant should help you make more money, keep more money, and pay less in taxes.
Bookkeeping is not just about entering numbers after the year is over. Good bookkeeping should tell you what is happening in your business while there is still time to do something about it.
If you wait until tax season to look at your books, you are usually too late.
But if you review your bookkeeping throughout the year, you can spot problems early. You can see which products, services, customers, or jobs are actually profitable. You can see where money is leaking out. You can see if payroll, rent, advertising, vehicles, meals, subcontractors, or other expenses are getting out of control.
That information can help you make better business decisions.
You may find out that one part of your business is making money while another part is quietly losing money. You may find out that your prices are too low. You may find out that you need to cut certain expenses, change how you bill customers, or stop doing work that is not profitable.
That is how bookkeeping can help increase profits.
But it can also help decrease taxes.
When your books are accurate and current, your tax professional can help you plan before the year is over. That may include retirement plan contributions, equipment purchases, entity planning, payroll decisions, expense timing, depreciation planning, accountable plans, health insurance strategies, or other tax-saving opportunities.
The key is timing.
Tax planning works best before December 31st, not after the year is already over.
Your bookkeeper records what happened. Your accountant or tax professional should help you understand what it means. But as the business owner, you need to actually use that information.
A good set of books should answer important questions like:
- Am I making money?
- Where am I making money?
- Where am I losing money?
- Do I have cash flow problems?
- Am I paying too much in taxes?
- What should I change before the year ends?
If your bookkeeping is only being used to file a tax return, you are probably missing the biggest benefit.
Your books should be a profit tool, a tax planning tool, and a business management tool.
The goal is not just to have clean books.
The goal is to use those books to make smarter decisions, increase profits, and legally reduce taxes.
Contact Torchlight Tax for a free consultation at 877-758-7797 or info@torchlighttax.com.
