Bookkeeping

1. The Pros and Cons of Doing Your Own Bookkeeping The issue of doing your own bookkeeping became prevalent with the advent of low cost accounting software in the early 1990's. On September 27, 1994 Intuit purchased a program called MoneyCounts from Parsons Technology for $64 Million. Intuit changed the name of MoneyCounts to QuickBooks and created a very effective Unique Selling Proposition "You can save money by doing your own bookkeeping". That USP resulted in Intuit capturing almost 85% of the small business market. Accountants were no fans of this extremely popular software program for several very valid reasons. First, it was not a true accounting program with serious security flaws. Second, it was promoting inexperienced individuals take on a crucial segment of the financial process. Third, it was distracting business owners from their core business, and last, it drastically cut into the accountants business. Addressing all of the issues concerning DIY bookkeeping in great detail would require a book. I will cover as many of the main issues here to provide the reader with an opportunity to gain a better understanding of an extremely important subject. I welcome any questions and comments regarding the subject matter in an attempt to assist entrepreneurs that may not have had the opportunity to properly make an informed decision. The Issues If you're reading this special report chances are you're one of the millions of small business owners struggling with the issue of "doing your own books". For many, the idea of retaining an outside bookkeeper or accountant to handle your personal financial matters is sort of like opening up your closet to a complete stranger. I believe that this issue of personal privacy is valid. To be perfectly honest, one of the reasons I decided to become a CPA was because I knew I would be in business and wanted to be in control of my own finances. Most entrepreneurs don't have that option or the skill set. The issue of DIY bookkeeping is of tantamount importance because it could affect the financial viability of the enterprise. There are a number of issues to address including: The use of bookkeeping information to prepare tax returns The integrity of the financial information produced The validity of historical data to project future results The management of cash flow The cost of retaining a professional The time, effort and frustrations of keeping your own books

2. Addressing the government's increasing propensity to audit The time and effort learning about bookkeeping Creating the bookkeeping processes The trust factor As you can see there are a lot of issues to address in making the right choice. This is by far, not all inclusive. There may be many other legal, financial and/or personal issues at stake. The point here is that the subject of creating and maintaining a set of books and records for a small business is of significant importance. The decision as to how it will be done should not be made on a whim or by the uninformed. An individual operating a small business doesn't know what they don't know. Operating a business comes with certain responsibilities and obligations. Not knowing is not a valid reason when the books and records fall into question. I submit that as business owner it is your duty to know exactly what the issues are and make an informed decision about addressing each of them. You are, by default, the President of your company which comes with all of the associated responsibilities including tax, legal and personal liabilities. Reasons & Excuses Most, if not all startups take on the task of creating their own set of books and records for a few simple reasons: No funds to retain a professional Limited amount of transactions Exposing personal financial information The perception that it's easy The propensity to procrastinate Fear The Facts Every business must file a tax return. Eventually the issue of bookkeeping must be addressed. Millions of individuals choose to prepare their own tax returns which is another issue all by itself. Let me address that before going further. It's a real easy one and not because I prepare tax returns but because of the complexity of the tax laws, both Federal and State. I can compare the idea of an individual preparing their own tax return to pulling out my own teeth. When I was a child my teeth came out naturally. I didn't have to go to the dentist to have them pulled professionally. Even if I

3. pulled them out when I shouldn't have, eventually my permanent teeth would grow in to cover up my mistaken belief that I was a dentist. As an adult I know better. Hopefully, if you own a business you know better. To attempt to prepare your own tax return would be the same as trying to be your own dentist. There is simply too much at stake. Potentially missed write offs or even worse, over aggressive write offs resulting in an audit and the very unfortunate mistake of not incorporating your business and exposing your personal assets to a lawsuit, just to name a few. If you haven't figured out my position on this subject let me make it clear. Doing your own tax return is a monumental mistake. If you are going to open a business you need to enlist the advice of a good tax accountant. Getting back to the do it yourself bookkeeping issue, another fact to consider is the financial aspect. This is valid as most start ups have zero funds to begin with. The idea of investing in professional guidance takes particular shrewdness. One thing to consider is the very popular "Free consultation". I don't know many professionals that would not offer an initial strategy session to a potential new client. That pretty much makes this issue null and void. If you decide to retain the professional to guide you they will understand the financial issues involved. The right person will be willing to nurture you and your new business and come up with a pricing structure that will work. Don't expect a good accountant to work for free and don't enlist a family member or friend that is willing to work for free. They will not treat you as any other client for the simple fact that you're not. Some of the worst clients I ever had to work with were friends and family. The problem is that many times I was the bearer of very bad news putting me in a precarious position. If you have a friend or family member that is in the business, ask them to refer you to one of their associates. You will all be happy you did. The remaining issues all really have to do with your personal mindset. Fear, procrastination, perception etc. all have to be addressed at the mindset level and I'm not qualified to address those issues so I won't. Business and personal mindset coaches are in abundance today. Twenty years ago when Intuit perpetrated the missguided USP that "You can save money by doing your own bookkeeping", business coaching was not mainstream. It was probably more in the realm of psychotherapy or business consulting which was either in the category of extremely personal or too expensive for a start up. Today therapy and business coaching is standard fare making the issue of mindset really an issue of - are you serious about this business or not? That really only leaves one remaining issue to address; which is the volume of transactions. Does it really make sense to seek the help of a professional bookkeeper when the volume of your transactions are minimal? This question leads to another question which is, what constitutes minimal? If it's not minimal, should you still be doing your own books?

4. Now I can really get into the subject matter of whether or not a business owner should be doing their own bookkeeping. Let's first start with the definition of bookkeeping. It seems obvious that a subject so crucial to a business needs to be defined in order to properly make an informed decision on the matter. The definition of bookkeeping: The work or skill of keeping account books or systematic records of money transactions (distinguished from accounting). This is from yourdictionary dot com The definition of bookkeeping is keeping a detailed record of the business transactions for a person or business. An example of bookkeeping is the process of documenting bank statements each month. So its obviously very simple. Or is it? Where does one start? What method of keeping records is acceptable? What is the purpose of bookkeeping? For these answers I will refer you to IRS Publication 583 Starting a Business and Keeping Records. Why Keep Records? Everyone in business must keep records. Good records will help you do the following. Monitor the progress of your business. You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success. Prepare your financial statements. You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business. An income statement shows the income and expenses of the business for a given period of time. A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Identify source of receipts. You will receive money or property from many sources. Your records can identify the source of your receipts. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.

5. Keep track of deductible expenses. You may forget expenses when you prepare your tax return unless you record them when they occur. Prepare your tax returns. You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statements.