|
A business owner got this surprise a week before the taxes were due. He was shocked since he had never paid this much in taxes before.
And to make matters worse, he didn’t have the $71,000 to pay the taxes. The CPA had tried to warn him but he didn't pay attention.
What happened?
He was so focused on selling and producing the jobs that all he did was look at the bottom line of the profit and loss statement and never bothered to see whether it was accurate!
The business owner had no clue how profitable the company was because the company reported financials on a cash basis. There were profitable months and unprofitable months according to cash accounting….depending on when the money was received. To make matters worse, some of the cash received was deposits for jobs.
On a cash basis accounting and tax situation, you pay taxes on the money received even if you haven’t performed the work!
The contractor didn’t pay attention to his billing and receivables either…
Surprise!!!!
Sometimes you just have to be hit between the eyes by a 2X4 before you pay attention.
Don’t let this happen to your clients or you.
If a business owner is going to survive and grow his business, unless he pays attention, he will have tax issues. And, it's really hard for CPA's to keep from saying "I told you so" after they have warned the client who didn't pay attention.
First, the books MUST be on an accrual basis.
Owners SHOULDN’T do the bookkeeping and reports yourself. Their time is better spent selling, overseeing, and producing. Hire a competent bookkeeper to do the reports. (This may be you!)
Look at cash flow every week. I know this is not profit. However, you must have knowledge of cash going in and out of your business. With the weekly cash flow report you get an aged payable and aged receivables report. Make sure they are complete and look at them! (Email me at rking@ontheribbon.com if you’d like a copy of the weekly cash flow report.
Get timely (by the 15th of the next month) financial statements every month. Review them.
Here are some options (and yes, they are self serving!):
-
My book and/or audio The Courage to be Profitable, explains P&L’s and Balance Sheets in English rather than accounting babble. To order: https://amzn.to/4eDm7s5
- The Building Profit and Wealth two day class information is below. A day on P&L’s and a day on balance sheets.
-
Get us to help with your monthly review through Financially Fit Business. I am extending the offer to upload two years of financial statements at no charge through November 30, 2026. If you’re using QuickBooks online it takes less than 5 minutes to upload your financial statements. For other financial software it takes about 10 to 15 minutes. Click here to schedule a time.
Don’t get surprised with taxes. Pay attention to or help your clients pay attention to financial statements every month.
___________________________________________________________________________________
How to analyze financial statements in less than 10 minutes a month
Your bookkeeper can enter the data (although I prefer that you do it) into the Financially Fit Business software (www.financiallyfit.business). Click a button and you see the trends. If your financial trends are going the wrong way, you can and should take actions to reverse the trends. The help part of the software gives you suggested places to look. Or, we can review them with you.
Click here to schedule a time (takes about 10 minutes)
Reviewing timely, accurate financial statements helps you spot minor issues and resolve them before they become major cash flow or other crises.
| 
