10 most common setup errors resulting in improper reporting:
- Sales Tax: It is imperative that each company researches and understands the sales tax codes for their particular business. It can be a costly mistake to not charge properly for taxable items and crediting those funds to the correct jurisdiction.
- Payroll: The payroll tax laws are specific, complicated, and ever changing. Improper setup of your payroll items list creates improper reporting to the IRS and the State. Knowing what items are taxable, to each entity, for which one of the many taxes you pay can be like a maze.
- Chart of Accounts: When you present your financials to your banker, does it tell the whole story? Too many businesses use their chart of accounts like an items list. We see this a lot! Your chart of accounts is meant to be used to sort data from the many transactions you make. This data is what you use to create the financials you present to your bankers, lenders, and CPAs.
- Items: Items are tricky; they do all the work in the background. To make it more complicated, there are many different types of items. Inventory, payroll, sales tax, customer deposits, the cost of your materials and/or labor. If you don't set them up in their dual roles for income, expense, or asset you will unknowingly misrepresent your financial statements. As we stated earlier, they do all the work in the background.
- Inventory: If you have inventory you know it an be a nightmare to properly track. Getting your books to track your inventory correctly takes proper setup of your items lists.
- Assets: Too many companies expense their assets not understanding the proper procedure for setting them up and depreciating them. Knowing what to capitalize and what to expense makes a huge difference in your financials. If this is done improperly it will misrepresent your financials.
- Liabilities: How much money do you owe? Are your notes payable accurate? Many companies can't honestly answer these questions, let alone report it properly to their balance sheet. One of the problems we see is the lack of tracking credit card expenses.
- Equity Accounts: Do you really know what the true value of your company is? When you contribute monies are you properly tracking it? This is very confusing when you are pulling money in and out of your company. We see a lot of contributions improperly posted.
- Messy Vendor Lists: Having too many vendors slows your system down. We recommend that you not apply all transactions to vendors. You never want to see McDonalds or Wendy's on a vendor list. The general rule is: If you have not used that particular vendor in the last two years, make it inactive.
- Customer Lists: There is a lot of data that gets missed by not applying expenses to customer jobs. How do you know if you had a profit or loss on individual jobs or the items you sell? If you had a loss on your last customer job, would you know why? You can track COGS, materials and labor cost all the way down to worker's comp and payroll taxes associated to each job. Let us teach you how to take advantage of this powerful tracking tool.
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