The Truth About the Numbers – It Costs Even to Hide Them
I have posted various articles on many subjects, and this time, I am writing on the truth about the numbers. From my long career in accounting, I have noticed that this is the subject that many small business owners don’t know much about, of which numbers carry a huge significance in business and entrepreneurship.
How do I know about this weakness in entrepreneurs? Well, I’m consistently having a few accountants who come online, and say that, “Oh! You need to know your numbers!” This points out that much is not being done well; perhaps we need more accounting tips for small businesses?
Nevertheless, I want to go ahead and show you the kind of persons that I have been coming across, and it’s interesting to see. Number one, you have someone that’s going to use their accounting expertise to cheat or beat the system. Or, you have someone that doesn’t have accounting knowledge, and uses their inability to know numbers for cheating the system.
Therefore, a person with accounting expertise beats you down by contracts, and adding confusing numbers and terms. On the other hand, the one who lacks this knowledge may underpay employees, and skip taxes occasionally. The ones who underpay may even have more different gigs on the side; so much different messes!
Still, we’re talking about the truth about your numbers, and, the first principle is that you should pay your taxes.
More so, I call on businesses to know the numbers that show what’s coming in, which is business the income. All transactions are the numbers, where your clients pay you either via STRIPE, PAYPAL, or whichever means.
Besides just income, there are your purchases, which can either be an investment, or an expense. Remember, in your cash flows, there is cash spent on investment purchases, and cash spent on expenses.
Those are the numbers too. When you make a purchase for your business, or when you make an investment for your business, the investment could be considered an asset, and that’s also the numbers. If you had a down time in business, those numbers could probably have been prevented if you had numbers look at.
So, I feel like I should go back to explaining what bookkeeping is, just in a short and sweeter way.
Bookkeeping basically takes your day-to-day transactions and turn them into financial statements, which is then turned into your story. That’s what I mean by ‘the numbers’.
It is what’s coming in, or going out of your business, thus, your day to day transactions. I mentioned ‘turning your number into a story’, and by this, I mean that with numbers, there is a track record of how the business has been performing. Like, you can tell the IRS, or potential investors that you have been doing well by showing them performance over time.
Having highlighted the above, I also want to highlight the biggest truth about the numbers; you just can’t hide them! With this, I don’t care what you do, or what you say – things like you try as hard to collect cash from every customer. I see this more often, when entrepreneurship turns cunning, and suddenly people want to accept more cash.
Let me tell you this; collecting cash only, or using PAYPAL to get your customers paying will not help you.
We have examples where it backfired, badly. Think of when you want to get insurance cover for your business? Think of when you want to get a contract with a local business, or an investor? What happens with these? And, what is the first thing that they demand from you?
The numbers! But, when you have been collecting cash only, and not recording all transactions in your books, there will be no track record to show. When there is no record, or history to show, you lose your insurance, and potential contract.
So, in the process of trying to cheat the IRS, you end up shooting your business in the foot.
This becomes an important observation; that business is not always about having the IRS in mind, but other factors matter. You need a financial history to cater for all, and this is achieved by capturing all sales, and expenses in your books.
Trying to cheat the system by hiding numbers is not always the wisest thing to do, and I give reasons. A business needs a number of services, as long as it is operational. Think of how your business requires insurance? For you to be covered properly, they want to know your business’ worth, as well as how much you make.
Now, if you have been hiding sales, you may end up being under-insured, something that’s not too good to have. Your dilemma is that you want to hide from the IRS, yet you also feel the need to be fully insured. When it happens like this, you may think of having two sets of books as the solution, but that’s also too much to bear.
I feel like the fear for the IRS is overrated, resulting in businesses making such huge mistakes. On the back of this, my recommendation is that you get as many tax tips for small businesses from experts, before committing to unnecessary mistakes.
Why do I say you need help with tax, and business tips?
Well, throwing yourself under the bus can be sometimes an easy task, even though you do this thinking that you are saving yourself. Imagine, if I was to look, and audit your business, and say, “OK, so this person said they only made $50,000 in their business. And, they are operating at a loss of $10,000, meaning they are supposed to have savings of at least $10,000 to cover for those expenses that allow for a $10,000 loss.
In addition to $10,000 loss, they also have personal bills that they have never been late in paying. And, the bills, let’s say, are at $2000 per month, for 12 months. These translate to 24,00 per annum. In addition to the $10,000, you are now telling IRS that you are hiding $34,000, and you did this unknowingly, even if you thought that you were hiding numbers.”
So, if I was your agent, I would say, well show me the payment history with your car payment. And these will show me that you make at least so much every month. I see this easily because if you are not late with a single payment, then surely you have been making money. You see, there is a difference between making a loss, and not reporting everything.