I was curious what various bookkeepers and accountants thought were common misconceptions in the industry. I poked around a bit and here is what I discovered.
The first two come from COS Bookkeeping:
- Bookkeeping and accounting are the same thing. Nope, not really. Most CPA’s focus on tax preparation. Bookkeepers do the day-to-day managing of your financial records. When a bookkeeper does an excellent job, he makes the work of the accountant much easier.
- Bookkeepers sit at an adding machine all day. In 2016, that is really a LOL statement. The best bookkeepers are using a suite of sophisticated software to ensure all transactions are correctly recorded and documented.
The next four misconceptions come from Amy Northard, CPA:
- Owing money at tax time is bad. On the contrary, if you don’t owe money to Uncle Sam at the end of the year, chances are very good you had a very bad year. Your business is ultimately about making a profit. Giving Uncle Sam his cut is just part of the deal.
- Budgets are only needed in times of crisis. No, it’s the exact opposite. Budgets are needed to keep you out of crisis mode. Your budget has income projections and more importantly expense limits. These are the guideposts to profitability at year end. There is an old saying along the lines of “it doesn’t exist if it can’t be measured”. The budget is your way to measure whether you’re on track to meet your financial goals.
- Sales tax and income tax should be thought of the same way. No, they shouldn’t. The easy way to think about this is that until you pay the state/fed the income tax due, that money is your money. Sales tax, on the other hand, is NEVER your money. You are collecting sales tax on behalf of the taxing authority and you are the temporary custodian of their money. That’s a big difference.
- Small businesses don’t need bookkeeping. WHAT??? Every business needs to keep track of income and expense. Not doing so leads to invoices not collected and bills not paid. If you’re making money and paying vendors, you need to keep track of that and that is the very definition of bookkeeping.
Our final two misconceptions come from the nonprofit experts at Jitasa:
- Nonprofits shouldn’t make a profit. Isn’t that an easy myth to believe? Every business must make a profit to survive. The difference between nonprofits and for-profit businesses are the ways in which the profits are used. Bottom line, no profit means no business and in the case of nonprofits, mission failure.
- Overhead costs are bad. There is a lot of scrutiny in the press as to how much nonprofits spend on overhead expenses. The fact is a nonprofit is no different from any other business. Spending should never be wasteful. However, you DO have to run your business and that means paying rent, paying utilities, and meeting payroll. Overhead costs aren’t bad – they are necessary to run an organization.
Those are some common misconceptions I uncovered. Do you have any other myths you would like to blow to pieces? If so, please tell me in the comments below.
Isn’t it time you stopped worrying about bookkeeping? Set up a free consultation with me to see how I can take this off your hands!