Recently, a group of enrolled agents (EAs) discussed the most lucrative areas of billing in our tax practices. Do you want to know the one area guaranteed to generate a solid stream of fees for us?
It’s cleaning up your bookkeeping.
Yup. We can always look at a new or potential client’s bookkeeping records, no matter what system he or she uses, and find such a mess! It can take us months to find and correct all the errors. Guaranteed fees? At least $500—and perhaps as much as several thousand.
How can you avoid those extra fees? How can you get some real value out of your books, instead of meaningless gibberish? Get smart!
1. Learn how to screen bookkeepers. I have seen small businesses pay out hundreds of dollars every month to so-called bookkeepers who never got any training and haven’t a clue about Generally Accepted Accounting Principles (GAAP). Consider using the free bookkeeper hiring test at AIPB.org.
2. Take a bookkeeping course. Freelance bookkeepers cost about $50–$75 per hour these days. That’s a lot! Consider investing a paltry few dollars and ten to twenty hours in a decent bookkeeping course. Take the course online or at your local community college.
3. Learn the fundamentals of GAAP (Generally Accepted Accounting Principles). You can’t possibly do proper bookkeeping without an understanding of these principles. Learn about capitalized assets, how to record purchases with loans, and how to record the money you deposit into your business—and the money you take out. Get a better handle on your real bottom line.
4. Create automatic monthly journal entries for routine expenses. Set these up for things like depreciation and amortization.
5. Set up your financial reports so you can easily get comparisons. You’ll want to compare current year and prior year, current month and same month last year, and current month and year to date, among other choices.
6. Learn to read your financial reports.
- Do you need to make estimated taxes? Avoid penalties by paying on time.
- Do you have enough of a profit to allow you to invest in your retirement? Cut your taxes and gain some security.
- Do you have funds you can use to expand your business? Should you use the windfall for advertising, new product lines, services—or something else?
7. Collect money sooner. Are your accounts receivables too high? How much more could your business earn if you had the money sooner? When I showed one client how to collect the money sooner, he increased his sales from $1 million per year to over $10 million in two years.
8. Find ways to cut costs. Have your costs for materials, supplies, or other business-related needs increased dramatically since last year? Can you shop around and reduce those costs or get requests for proposals out for lower prices?
9. Take advantage of the array of free and low-cost record-keeping tools available to you. The best system may not be the most expensive one. But do find a system that can save you time, integrate a variety of information tools, and fit your business and lifestyle. Here are some interesting choices:
- QuickBooks offers a variety of online and in-house tools.
- Outright is designed specifically for the unincorporated business. It integrates your banking and credit card statements and more.
- FreshBooks is a billing system that integrates with Outright, Shoeboxed, PayPal, and more.
- Shoeboxed organizes your boxes of receipts, bank statements, and more for you.
The bottom line? The more you know about your business, the better chance you have of surviving these difficult and scary financial times. Better yet, by being savvy about your business, you can turn these times to your advantage and thrive!
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com.
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