Wednesday, February 5, 2014

How a year end review with your accountant can save you money

Most small business owners are careful to watch where they are spending money and avoiding accounting bills is common.  We like to sit down with our clients at the end of the year and review their financial statements with them.  We go through each account on their Balance Sheet to verify the accuracy and then we talk about the Profit & Loss and where/how they can make improvements.

I was meeting with one client recently and as we worked our way through the Balance Sheet, I went to the Accounts Receivable Aging report to see if it agreed to the Balance Sheet.  It did, but most of the accounts were over 90 days old.  I asked my client about it and was told that the invoices had been paid so they weren't outstanding. They were still new to the accounting system they were using and hadn't followed the process accurately.  I verified that the income for the invoices had been properly recorded and removed the invoices in question.  I explained that the invoices had doubled up the revenue for the business so their net income was $25000 higher than it should be.  That meant they could have paid taxes on $25000.

We continued the review and determined that there was additional revenue which wasn't accurate as they had put some personal money into the business checking account and had classified it as income instead of owner contribution or a loan.  We corrected that as well which reduced their income by another several thousand dollars.

We accomplished all of this in an hour which means she paid me a relatively modest sum of money to save thousands of dollars in taxes.  Tax accountants usually don't have the time or ability to drill into the details when they are preparing tax returns so these errors likely would not have been detected.

This client isn't likely to repeat this error, but we are all humans and having a second set of eyes double check your accounting efforts is always a good idea.

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