Did You Review Your Financial Statements Before Tax Day?
If you filed and extension or you just want to know how you could have been better prepared, here are a 5 things you can do to close the books and prepare for tax day:
- Run your Balance Sheet and P&L.
- Drill into each account and total as appropriate to review what’s inside.
- Look at a Monthly P&L and analyze the trends. Look for missing items.
- Run expenses by vendor report, and total by month.
- Look at a Statement of Cash Flows.
You don’t have to be an accountant or a bookkeeper, but you should understand enough to know how to go through your books. I strongly recommend doing this together with your bookkeeper or your accountant. Between you as the business owner and the accounting or bookkeeping professional involved, you have the perfect compliment of knowledge for this process. As the business owner you understand better than anyone, the day to day operations and based on that, what the numbers should look like. Most importantly you are in the best position to know when something doesn’t look right. The accounting or bookkeeping professional of course should understand from that perspective when something may or may not be classified correctly. They should also understand when from an accounting perspective something doesn’t look right.
In short, the business owner has the operational input, and the accounting or bookkeeping professional has the financial input. Together you can accomplish in about an hour (2 at the most) what would otherwise costs you possibly many hundreds in fees to the tax prep professional. Moreover I can assure you that the person preparing your tax returns would much rather spend that extra time giving you strategic advice instead of reviewing the books.
After spending an hour or two doing your own review, for the same extra few hundred bucks you can get 10 times the value from your CPA, or EA (whomever is doing your taxes) in strategic planning.
Watch the video to see what this looks like and as always, please post your comments and questions below.