There are a lot of costs bookkeeping needs to take care of. If we try to classify them, either by their nature, behaviour or control ability, we will come up with more common terms: direct costs vs indirect costs, fixed costs vs variable costs, and the ones that are more or less controllable.
Bookkeeping and accounting can be expensive, especially if you pay an accounting firm to do it for you.
Likewise, it can cost a lot if it’s done in-house by people who aren’t too familiar with the subject and make mistakes.
Bottom-line, poor bookkeeping & accounting can lead to not just operational errors (spending too much), it can also lead to problems with the IRS due to late or non-payment of taxes.
In addition, costs bookkeeping traces in a day to day business are usually related to normal costs, while abnormal ones imply an unwanted or unfortunate event, such as accidents, riots etc.
We all deal with standard costs – easily computed in advance, and the operating costs, which are associated with daily operations (including costs of production, payroll and many others).
However, there is a lot that someone who isn’t deep into finance knows little about. Those can affect your balance sheets to a great extent, so that your income statement is not as desired.
There are plenty other costs bookkeeping, if professional, must take care of so that your financial reports give no headache to anyone.
Here are some examples of tax-related & operational costs that can come from not keeping clean books for your business.
TAX-RELATED COSTS
The cost of an ‘offer in compromise’
An offer in compromise is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles a taxpayer’s tax liabilities for less than the full amount owed.
You can qualify for an OIC if the IRS has a doubt as to the collectibility of a liability.
Also, when there’s a genuine dispute as to the existence or amount of the correct tax debt under the law.
The second way is if there’s doubt that the amount owed is fully collectible.
This occurs when the taxpayer’s assets and income are less than the full amount of the tax liability.
By keeping accurate books, you can understand when you qualify for an OIC and pay less than your tax liability.
IRS penalties and interest charges
If quarterly estimated tax payments are made late then the IRS will charge an additional penalty on top of the tax liability.
A penalty can also occur if a business doesn’t pay enough estimated taxes and underpays their liability.
Once these penalties are assessed the IRS will begin to charge interest on the penalty as well as the amount of tax underpaid. This is usually a high-interest rate and can add up if it takes some time to come up with the money.
The last way a company can be hit with a penalty and interest is if their return gets reviewed by the IRS and deemed inaccurate. A penalty will be assessed as well as the excess tax not paid will need to be paid as well as the interest rate times however long it’s been outstanding.
OPERATIONAL COSTS
The cost of a payment plan
When a company doesn’t have an internal bookkeeper they often outsource it to a big accounting firm. You can send them all the receipts and invoices and they will take care of the books for you.
However, this can cost a lot of money.
They set you up on a retainer where you can pay them monthly or quarterly for their services.
These accounting firms cost a lot of money and small businesses tend to be the last priority.
Audit Fees
If you are a public company then it is required that your financials get audited at least once a year.
Additionally, if a private company wants to apply for a loan or debt financing they will usually require an audit to be performed.
Audits carried out by CPA firms aren’t cheap, and the auditing fees can add up depending on the number of hours it takes.
Even though audits are costly, it can be even more expensive if they find something misstated in the financials.
Not staying on top of your books/finances will cost you more
Maybe it won’t cost you any fees or salaries since you won’t have to be paying a bookkeeper.
However, the cost of not keeping accurate books comes at the management level. A company can over-leverage themselves or find themselves owing to much. If accounts like receivables aren’t maintained then a company can miss out on cash collections from customers.
Likewise payable balances could get outdated and interest could be added. Managing a company becomes a lot easier when the financial picture is up to date.
ALOEwerx provides cost-effective accounting
ALOEwerx is an accounting service that provides a bookkeeper, an accountant, and a CPA all for one price.
It is a company’s one stop shop for all it’s accounting needs.
Leaner than lean accounting and better at using scarce resources than throughput accounting; some would even say that it is more convenient in the long run than ABC (action based accounting).
For the management, accounting has never been made easier to deal with.
Rather than pay all of the above items a company can instead pay as little as $35 a month.
That’s right, all IRS penalties and interest fees can be out of your worry and you don’t have to pay those outrageous payment plans for a big accounting firm.
It’s high quality accounting for a fraction of the fee.
Our painless accounting service allows management to not worry about the books but instead grow the business.