Seven signs your small business should outsource all or part of its bookkeeping and accounting — or has outgrown doing its own books.
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1. The cost of paying in-house personnel outweighs its benefits.
Vicky Dominguez, a professor of accounting, finance and computer office technology at the College of Southern Nevada, offered an example.
A small local medical office, with five to 10 medical assistants and secretaries, would pay $40,000 to $50,000 per year in salary for an in-house bookkeeper, she said. It could outsource the work for about the same cost or less, $3,000 to $4,000 month, to a CPA firm. Or, it could outsource the work to a bookkeeping service for about $12,000 per year.
2. The company has outgrown the ability of its staff to do the books internally.
3. The company can’t get focused on accounting and is running behind on important bookkeeping tasks.
“The No. 1 sign is when they get behind,” said Chris Wilcox, a partner at the Las Vegas accounting firm Johnson Jacobson Wilcox. “Invariably, the owner will get behind with his bank reconciliations. It’s only a month; he thinks, ‘No problem, I’ll catch it up next month.’ And then next month he gets behind and now we’re three months behind. If you start to get behind as a business owner, you need to get some help (from in or outside of the firm). If you get behind on the tax reports, there are penalties. There’s interest if you’re not making payments on time.”
4. The company is being sued by the state for failing to pay unemployment insurance taxes, or is being audited for failure to remit sales taxes or payroll taxes.
“A mistake we see with the sales tax is the business collects the money but it never gets around to filing the return or remitting the money, and the state frowns on that. They don’t take kindly to the fact that I collected tax from you and never sent it to them. The same thing with unemployment insurance — it’s part of the cost of doing business,” Wilcox said. “The IRS is very aggressive if you don’t remit the taxes that are withheld from the employees’ paychecks. If you don’t remit those taxes, the IRS doesn’t have a lot of patience with you.
“With payroll taxes that are withheld from the weekly or biweekly payroll, people see this chunk of money sitting in their bank account and there’s just enough there to keep the doors open and pay the vendors to keep them off their back and they use that. That doesn’t go away in bankruptcy. There’s a 100 percent (IRS) penalty. If I as a business owner choose to pay my vendors rather than remit that money to the IRS, the IRS has the ability to come after me even if I’m incorporated,” Wilcox said.
5. The company needs financial statements signed off by a CPA to obtain a loan or a bond.
6. The company is contemplating an unusual transaction that may have tax implications — such as buying another company, buying real estate or buying equipment.
“We help structure the transactions on the front end, and then typically we’ll work with CPAs or give them information and sometimes help do the tax returns on the back end,” said Las Vegas tax attorney Scott Swain, of the law firm McDonald Carano Wilson.
7. A company’s owner or its partners are thinking of succession planning.
They may be asking themselves what happens to their share of the business if they die. Or they may be planning to retire and want to give their share of the business to one or more of their children.
A hot issue currently, Wilcox said, involves transferring wealth from one generation to another.
He said that unless Congress acts by the end of the year, this may be the last year that business owners and individuals can give up to $5 million in the form of cash or stock in a business to a family member in a tax-free transaction.
— Steve Green
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With tax season under way, Nevadans are once again asking if they can file their own individual and business taxes or if they need professional help.
For most individuals, the April 17 federal income tax deadline is a once-yearly headache.
But for local business owners and executives, filing taxes is a year-round concern as companies are required to remit payroll, sales and other taxes on a quarterly or monthly basis — and, in some cases, even more frequently.
Keeping in mind the year-round nature of tax reporting and payment requirements for businesses — and the fact that tax reporting is based on basic ongoing bookkeeping entries and reports — we talked with local accounting experts about issues faced by businesses.
Specifically, we asked whether small businesses can handle their own bookkeeping and tax reporting chores using popular software — and at what point professionals should be called in for help.
The bottom line, our experts said, was that small businesses are capable of doing their own bookkeeping and taxes, many are doing so and many are wisely supplementing their in-house work with the help of professionals on an as-needed basis.
Some of the professionals we talked to questioned whether it makes sense for small-business owners to even attempt to do their own books and taxes.
“The small-business owner is the marketer, is the doer — is doing everything. So where is their time best spent: Sitting there pushing a pencil or is it out there bringing in new business?” said Laurie Johnson, a partner at the Las Vegas accounting and consulting firm Johnson Jacobson Wilcox.
And small businesses may find that even if they have in-house expertise, it makes sense to outsource bookkeeping, accounting and tax chores, said Vicky Dominguez, an accounting professor at the College of Southern Nevada.
“If the volume of accounting work is minimal, the cost of hiring the right person with strong accounting and taxation credentials is becoming very expensive. So outsourcing becomes very attractive,” she said.
Chris Wilcox, another partner at Johnson Jacobson Wilcox, agreed that both routine bookkeeping and complex CPA work can be outsourced. His firm typically works with businesses that are large enough to have their own controller but need Johnson Jacobson Wilcox for advanced analysis and other CPA functions.
“There are some good bookkeeping services in Las Vegas that we refer work to, and they’re not CPAs. We have a handful of clients that aren’t large enough to have their own in-house controller, and we’ve referred them to a bookkeeping service. And they do a great job for them,” he said.
Nevertheless, a small-business owner and his or her staff may actually like working with the numbers and prefer to keep that work in house. With their purchased software residing in the cloud (i.e. not loaded to a specific computer) and accessible on mobile devices, they can do that work anytime and anywhere without worrying about the 9-to-5 schedule of a bookkeeper or accountant.
On top of that, pretty much every business function is now automated, so why would accounting be different than computerized payroll, invoicing, inventory, shipping, bill paying, marketing and human resources functions?
If done right, it’s fine for small businesses to handle their own bookkeeping and tax chores, Dominguez said.
“If you can’t figure out how to do it, outside help is always available,” she said. “Many small-business owners are learning to do their own accounting and bookkeeping. I have several students who are small-business owners and potential business owners taking these courses specifically to be able to do their own record keeping, balance their bank accounts, understand better their financial standing to be able to apply for bank loans and refinance mortgages and other business financial activities.”
Anyone contemplating doing their own books, though, needs to understand that bookkeeping and taxes are potential minefields.
Consider this: The Nevada Department of Taxation alone collects 19 different taxes. Not every tax is applicable to every business, but that’s a lot of taxes.
And those 19 taxes don’t include such levies as workers compensation insurance premiums, unemployment taxes, federal payroll taxes and federal business income taxes.
Potential problems are lurking at every turn, ranging from an IRS or state tax audit caused by errors on the filer’s part to the discovery that a longtime employee has gotten away with stealing money from the company because of a lack of adequate internal financial controls.
A phrase often used in cautioning businesspeople about doing their own books and taxes and relying on tax software is “garbage in, garbage out,” meaning reports generated by software programs are only as accurate as the data used to generate them.
“If you do it in-house, you’re not paying an outside professional and you save money as long as you’re doing it correctly,” said Scott Swain, a tax attorney at the Nevada law firm McDonald Carano Wilson.
“The real problem is you may not know that you’re not doing it correctly. You might think everything’s fine, and then you find out when you get hit with a tax audit that you weren’t doing it correctly. Now you have a problem you have to deal with. You haven’t set aside funds to deal with that, and it could kill you.
“Another issue an outside accountant or accounting firm can address is checks and balances to make sure there are proper accounting procedures to prevent embezzlement or fraud by employees. We’ve had clients who had trusted employees disappear after embezzling large sums of money, and all they can really do is file a complaint with the police.
“If they had an accounting firm looking at it, it’s very possible these things would have been prevented or discovered before becoming such a large problem,” Swain said.
For those intent on doing their own books and taxes, our experts offered this advice:
First, a CPA and attorney should be consulted when establishing a business so the correct business structure is selected (partnership, LLC, corporation, etc.) and a “fill-in-the-blanks” bookkeeping structure can be established.
Second, those doing the bookkeeping work must know what they’re doing and may want to sign up for professional training on using popular accounting and tax software, like QuickBooks, TurboTax and Peachtree.
Third, the attorney and CPA need to be called in for help with unusual circumstances that may have tax implications — things like the purchase of real estate or expensive equipment.