Are Your Books Really Clean? The Biggest Small Business Lie?
A small business recently approached me for help. They have about 10 employees in a service-based business and hadn’t filed their 2023 1065 return yet.
I quoted them 30 hours for QuickBooks cleanup, but they didn’t like the rate and hired someone in Pakistan instead.
Just received an email saying they’re 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 there are over 2000 unreconciled transactions.
They’re thrilled with the work done, but now my cleanup estimate has doubled.
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The Biggest Small Business Lie: “My Books are Clean!”
One of the most common lies that small business owners tell themselves and others is that their books are clean and in order. This can be a dangerous misconception, as inaccurate financial records can lead to serious consequences such as tax penalties, cash flow problems, and even legal issues.
In the case mentioned, a small business with 10 employees in a service-based industry decided to hire someone in Pakistan to clean up their QuickBooks (QB) without fully understanding the scope of the work required. The owner initially quoted an estimate of 30 hours for the cleanup, but the hired help completed the task unexpectedly quickly and claimed that the books were now cleaned up and ready for tax filing.
However, upon closer inspection, it was discovered that there were major discrepancies in the financial records. The bank balance did not match the balance in QB, there was a significant difference in cash balance, and over 2000 transactions were left unreconciled. Clearly, the work done was not of high quality and did not fully address the issues present in the books.
This situation highlights the importance of hiring experienced and qualified professionals to handle financial tasks such as Bookkeeping and cleanup. Cutting corners by hiring cheaper help without verifying their expertise can end up costing the business more in the long run. In this case, the cleanup estimate doubled due to the poor quality of work done initially.
Small business owners should prioritize maintaining accurate and up-to-date financial records to make informed decisions and avoid potential risks. Regular reviews and audits of the books can help prevent discrepancies and ensure that the business is on solid financial footing.
In conclusion, the lie “My books are clean!” can have serious consequences for small businesses if not addressed promptly and accurately. Hiring trustworthy professionals and investing in proper financial management can help prevent costly mistakes and keep the business running smoothly.