Maintaining accurate accounting records is more than a legal obligation; it helps make any business make work more efficiently. Accounting records help to tell the story about expenses, inventory levels, and vendor management. Fanny Monsalve, owner and CEO of Taxes & Business Resources, LLC, explains in detail the importance of maintaining organized accounting records and shares some tips to achieve it.
HCAC: Who is TBR Services and what is your line of work?
Fanny Monsalve: TBR Services is a company that provides accounting and tax preparation services for individuals, small and medium-sized companies, as well as offering advice for opening new businesses. We saw the need of our customers to organize their accounting records before preparing their taxes and avoid mistakes when reporting. We are members of HCAC, and this year we received the Associate of the Year Award in the 2014 Brilliance Awards.
HCAC: What is the importance of keeping accounting records monthly, quarterly or annually?
FM: Many SME entrepreneurs see accounting as a legal obligation, but it’s vital to properly track all company records, so it becomes easier to manage income, expenses, cash, inventory, receivable and payable accounts. If a company regularly updates their accounting records, they can save time, money, make decisions at the right time, and avoid oversights that may affect the future finances of the company.
HCAC: What do you believe are the main mistakes made by SMEs? What do you recommend to avoid them?
FM: The biggest mistake is to think that keeping accounting records is an expense for the company. It’s an investment that helps you make decisions when needed, makes it easier to identify how to reduce the income to be reported at the end of the year, and in my opinion, reduces the possibility that the IRS would conduct an audit. Another factor that companies should avoid is the use of cash to pay their suppliers and subcontractors, because it’s not easy to prove to the IRS that this payment was really an expense to the company. You may end up paying taxes on this money if you do not have proper records of these expenses.
HCAC: What can happen if business owners are not aware of their businesses’ financial reality?
FM: This may cause issues like paying more taxes than necessary or believing that your business is making a profit when it’s actually is generating losses. Even worse, it can cause you to miss out on opportunities for your business. Accounting is a tool that helps to have better control of company funds and to take better advantage of the assets of the company.
HCAC: What should a small company never stop doing regarding their accounting?
FM: A good entrepreneur should never be in the dark about the financial position of the company, maintain accounting records up to date, and report taxes on income and payroll on time to the IRS, to avoid an extra cost to the company. He must also have a good handle on the income to deliver all the responsibilities and costs of the company on time.
HCAC: What are the penalties a company might face if they don’t do things properly?
FM: If reports are not presented correctly, penalties can vary according to the situation. In general, if it’s an income left to report in the books, the government assigns a percentage according to the status of the company and the time that has passed without such income being reported.
HCAC: What is your advice for a small growing company?
FM: The most important advice I can give to the owner of a business that is just beginning or is already established, is for them to keep proper records of their income and expenses. Look at accounting as a necessity not an expense, and finally to maintain very good communication with the accountant to avoid any discrepancy in accounting records. I also suggest that the financial management of the company should take into account a possible IRS audit. If this happens, make sure you have the documentation to respond and take advice from a good accounting professional.
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