Taxes

A Better Approach to Bookkeeping

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Let’s face it, if you are a small business owner, you probably didn’t get into it so you could do the bookkeeping. In fact, it’s probably the part of running a business that you enjoy the least.

But, more than just being a diversion from the day-to-day operation of the business, most current approaches to bookkeeping and accounting for small and medium sized businesses may also potentially reduce the accuracy of decision making.  

“As a start-up business you may struggle to get real-time insight into your actual numbers, waiting until the end of the month before bookkeepers even look at your accounts. Investing in new accounting technologies can help small business owners reduce the stress of bookkeeping and improve visibility into their business.”

-Zach Olson, Managing Director, KPMG Spark

What’s new in small business accounting?

The rapid evolution and maturity of new technologies like machine learning, data analytics and visualization tools can assist decision-makers with achieving unprecedented insights and visibility into their data. And that can be harnessed to give small business owners a real advantage.

Indeed, there are a growing number of back office and accounting platforms that are applying cognitive technologies to help deliver greater value to business owners. What is cognitive automation? Cognitive software mimics human activities such as perceiving, inferring, gathering evidence, hypothesizing, and reasoning. And, like humans, cognitive software is taught rather than traditionally programmed.

In other words, while we program explicit steps into a traditional computer to solve a problem, in a cognitive solution, we teach the tool the area of interest, or ‘domain’. Once the base domain knowledge is established within the software, the cognitive solution typically continues to learn and solve problems within that domain, generally all on its own.[1][KA1] 

Some of the very best new accounting platforms, for example, use cognitive automation technologies to create a better understanding of their users’ bookkeeping and expense reporting methods. This information is then digested by the system and translated into functionality improvements that are tailored to the specific user.

“Far too often, I talk to founders who find themselves bogged down in bookkeeping which means they are not fully focused on doing what they do best – improving and growing the business. With all of the new technologies that are now available, founders and small business owners should be considering all of the available options for reducing the back office burden.”

-        Brian Hughes, National Private Markets Group Leader and Co-Leader Venture Capital, KPMG LLP

10 potential benefits of software-enabled accounting platforms

How can new software-enabled approaches to accounting and bookkeeping potentially help founders and small business owners make better decisions and reduce the burden of the back office? Today’s software-enabled accounting platforms may be able to help you:

1.     Get a fuller view: Connect securely to your bank accounts, credit cards and payment apps to get a complete picture of your current accounts.

2.     Simplify tax preparation: Leverage your improved visibility and data management to quickly and easily prepare and file taxes.

3.     Prepare monthly reporting faster: Keep track of financial performance with interactive dashboards

4.     Search with ease: Search and filter for transactions by date, account type and category on demand.

5.     Get paid faster: Create professional invoices in under a minute.  

6.     Track your mileage: Track all of the details you need to document your mileage for tax purposes.

7.     See how you spend: Log in online and see up-to-date transactions and analytics on how you spend your money.

8.     Make payroll easier: By connecting to a payroll platform, you can simplify the calculation, filing and payment of employees and payroll taxes.

9.     Take comfort in human oversight: Combine new technologies with experienced account teams.

10.  Relax with great data security: Choose a solution that takes extraordinary measures to help ensure your data is secure.

Cognitive in action in the back office

How can cognitive deliver value in small business accounting? To start, the system we work with at KPMG uses APIs and direct connections to over 20,000 financial institutions to continuously update the accounting ledger. Leveraging machine learning, it automatically categorizes line items based on algorithms trained specifically for their business and sector. All of that data is then served up to users through a cloud platform, allowing users to tap into their accounting data from virtually anywhere.  

Of course, machines on their own are not (yet) sophisticated enough to replace human capability, judgement and control; they are also not terribly good at customer relationship management. So it is still important to have a dedicated – human – accountant who oversees the books, carefully monitors the algorithms and interacts with clients. But, given that most of their manual, repetitive tasks are now being shouldered by bots, these accounting professionals are free to focus on helping small business owners increase the amount of information derived from their data.  

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates and related entities.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

KPMG’s individual tax services may only be provided to owners and senior executives of private business clients of the firm or in connection with global mobility services or bank trust outsourcing services.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

[1] http://taxexecutive.org/bots-natural-language-processing-and-machine-learning/

 [KA1]Sources should be credited in a format similar to the examples below:

Source: Financial Times, London, Joanna Chung (July 7, 2016).

Source: KPMG International, “Replay: Fast Forward” (November 2015).

Source: ABC News Web site, Politics section, May 23, 2016.

 

Business Tax Checklist

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Meet with your bookkeeper. Making sure your books are correct is the most important thing you can do before tax season starts. The sooner you can meet with your bookkeeper, the sooner you can solve any potential errors that may exist in the books. Take the time to go through your financial statements with them. Feeling confident about the financial standing of your business will take some of the pressure off during the tax season.

Organize your bank statements. Start early by having these documents on-hand and organized. A tax preparer may request your statements to ensure that all of your business expenses and income are reflected properly in the bookkeeping. Being prepared beforehand will also save you time in the event that your books need to be altered.

Figure out which form is right for you. Knowing which tax forms are specific to your entity will help you know what type of information you will need to have handy for your tax preparer.

 

Here are some organizational resources:

S-Corporation Organizer

Partnership/Multi-Member LLC Organizer

C-Corporation Organizer

Sole Proprietor/Single-Member LLC

Individual Organizer

 

Filling out these documents and having the associated documentation before meeting with your tax preparer will expedite the process. The process can be completed twice as fast if you sign up with KPMG Spark for their bookkeeping and tax preparation services.

Know the important deadlines. Knowing your tax deadline will help you know how much time you have before you get slapped with a penalty. Your deadline will depend on your entity type:

 

Entity

Original Due Date

Partnerships, S Corporations, and LLC’s

March 15, 2018

C Corporations and Individuals (Includes Single Member LLC or Sole Proprietorships)

April 17, 2018

Exempt Organizations*

May 15, 2018

You will also want to keep in mind the due date for employee W-2 and Contract Labor 1099’s: January 31st, 2018

Schedule an early appointment with your tax preparer. This single action will put you far ahead of most. Bring all your necessary documents to this meeting, including your financial statements. Your tax preparer should be able to tell you what information may be missing. When you return for your actual tax consultation you will be fully confident that you have all the necessary documentation. Try to schedule this appointment as soon as you can into the new year. This will give you more time to prepare and will allow you a better chance to meet with your tax advisor before they get sucked into the tax season.


Shayler Stagg manages the books for 45 small businesses from various industries at KPMG Spark, is an avid reader of Greek philosophers, and is a huge Metallica fan. Connect with him on LinkedIn.