“My Books Are Clean!” Is This the Biggest Small Business Lie?
A small business recently approached me for help. They have about 10 employees in a service-based industry and haven’t filed their 2023 1065 return yet.
I quoted them 30 hours for QuickBooks cleanup, but they found my rate too high and decided to hire someone in Pakistan instead.
I just received an email saying they are ready for tax filing and that their books are now cleaned up!
Their bank balance is $3,354, but the balance in QuickBooks is $635,518. Their cash balance is negative $13,000 and they have over 2,000 unreconciled transactions.
It seems like the cleanup job done by the person in Pakistan was not up to par. Looks like my cleanup estimate just doubled.
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The Biggest Small Business Lie: “My Books are Clean!”
When it comes to small businesses, one of the most common lies that owners tell themselves is that their books are clean and in proper order. This can be a dangerous mistake, as inaccurate or messy financial records can lead to serious consequences such as incorrect tax filings, financial losses, or even legal troubles.
A recent example illustrates this point perfectly. A small business with about 10 employees in a service-based industry had not filed their 2023 taxes yet and needed help cleaning up their QuickBooks (QB) records. The business owner was quoted an estimate of 30 hours for the cleanup, but they thought the rate was too high and decided to hire someone in Pakistan instead.
After some time, the business owner proudly emailed their accountant saying that their books were now cleaned up and ready for tax filing. However, a quick glance at the numbers revealed a different story. The bank balance was $3,354, but the balance in QB showed a whopping $635,518. The cash balance was -$13,000, indicating a serious discrepancy. In addition, there were over 2000 unreconciled transactions, which indicated sloppy Bookkeeping.
This situation perfectly encapsulates the danger of assuming that your books are clean without proper oversight. Hiring someone without the expertise or oversight to do the job properly can lead to costly mistakes and inaccuracies. In this case, the initial cleanup estimate was doubled due to the poor quality of work done by the hired help.
So, the next time you hear someone say “My books are clean!” in the context of a small business, take it with a grain of salt. It’s always better to invest in professional help and ensure that your financial records are accurate and up-to-date to avoid potential issues down the line.