It’s alarming for me to see how many clients are not maintaining their checkbooks and records properly or are not even keeping separate books at all for each of the companies they own and operate. Maintaining your books is not something I advocate solely as a tax-savings strategy; it can also prevent you from losing your sanity and getting dragged into a potential lawsuit yes i mean lawsiut.
Thus, it’s critical that business owners do some bookkeeping and get their accounting ‘dialed in’. Here 5 significant reasons to take your accounting seriously.
1. Tax Planning
First and foremost, there is no way you can make intelligent tax planning decisions without knowing the condition of your business. How much net-income, or loss, and whether or not you need to be looking for extra tax breaks. Get your books up to date to at least some degree so you can make a lucid decision.
2. Corporate veil
If you want asset protection, your books have to be in order…and I’m not just talking about your corporate records. I’m talking about your accounting records. If you are commingling and your accounting a mess, a plaintiff can more easily pierce your corporate veil.
3. Audit protection
Having a separate checkbook and good accounting records will improve your chances in an KRA audit. The KRA will oftentimes disallow a number of expenses when personal and business expenses are commingled in a single checkbook.
4. Less stress and more sanity
One might think doing your accounting and keeping your books up to date is cumbersome, unnecessary, and possibly even a waste of time. In fact, I have seen time and again that this procedure saves time and money in the long run. When your books are disorganized, you’ll feel a constant stress to get it taken care of and this ultimately can cause you to feel undone.
5. Improved decision-making
Having good accounting records leads to quality decision-making. How can you expect to be a successful business owner without accurate records? You owe it to yourself and your business to keep good books.
If you want to throw caution to the wind regarding corporate veil protection, commingle revenue, and have an audit nightmare, that’s fine. But also keep in mind the shillings and sense. Good bookkeeping is also about tax deductions—capturing write-offs you would otherwise miss and having the power of better information to make informed decisions quickly and effectively.
A better bookkeeping strategy is not an elusive goal. Trust me when I say you can do it!