McCadden: Bookkeeping and Priorities—2 Items to Have in Order

by Kyle Clapham
Shawn Headshot Accountant

Many remodelers really don’t do adequate bookkeeping. It is also true many of them don’t organize or even keep good documentation of their business activities and contracts. For years businesses have gotten away with these poor practices. It’s sad and puzzling to me why a business owner wouldn’t want to know how well their business is doing, where their money is going and whether they’re making a profit.

In my opinion many get away with and keep repeating this terrible business practice largely because they’ve been able to dodge paying the income, business and payroll taxes they should be paying. Essentially, because they reduce costs by not paying these things, they continue to undercut legitimate businesses and continue to falsely believe they are turning a profit. That is about to change.

What’s Coming

The new budget reconciliation bill recently signed into law provides $78 billion in funding for the Internal Revenue Service over the next 10 years. This will enable the IRS to hire more and step-up enforcement to boost federal coffers.
If you lack adequate bookkeeping, and this is impacting the quality of your tax returns, you might be one of those who experience this stepped-up enforcement.

A tax audit is not something you would want to experience. If you get one, the IRS may also be motivated to check into your subcontractors and 1099s to see how much you actually gave them and to make sure they too are paying their taxes.

Keep in mind these are not new methods and tactics. It’s just that the IRS hasn’t had the budget to do this kind of auditing until now. They know how to do it, and now they will have their mandate as well as the funds and staff to pick up the pace.

Good Reasons to Get Your Books in Order

As I indicated above, if your tax returns and backup documentation are lacking in accuracy and detail you are more likely to be flagged for audit. Once you get an audit letter from the IRS, you had better be ready.

The best way to defend your position and the accuracy of your tax returns is to keep accurate and detailed bookkeeping records and have a professional tax accountant prepare your returns using your bookkeeping records as the backup for the information included in your returns. Having your neighbor or your wife’s uncle prepare your returns for you to save on accounting fees will probably be a poor strategy going forward.

I was audited only once during my career as a remodeling business owner. Even though I was running a legitimate business with great bookkeeping and used a professional accountant, I was still very anxious about the audit. One reality that worried me is that if the IRS decides you are guilty of something, you are assumed guilty until you prove your innocence, at your own expense. Fighting the government is not easy and can be very expensive.

Fortunately, my accountant was able to be there at my business that day to meet with the auditor and provide all the answers and documentation the auditor asked for. When it was all said and done, the only thing the auditor found was a late tax payment, and my business had to pay just under $100 in fines for the late payment. They had to find something, right? Although I didn’t owe any money in taxes, it did cost me almost $2,000 to have my accountant handle the audit for me.

An Even Better Reason to Get Your Priorities in Order

Having set up accurate bookkeeping and professional accounting support for your business is a non-negotiable requirement if you want to run and grow a consistently profitable business. Without these things in place, it’s kind of like a blind captain sailing his ship to sea into the darkness of night. In addition to reducing the likelihood of as well as the potential negative effects of an audit, getting your books and accounting in order will not only save you money if you’re audited, but it can also definitely help you earn much more money.

A well-organized chart of accounts, strategically separated to individually track costs of goods sold (COGS), overhead expenses and profit can give you and your business a lot of insight into what is really happening within your business. For example, wouldn’t it be good to know in the middle of the year whether your business is earning a profit? Wouldn’t that be way better than waiting until next April to find out how you did the year before?

If your mid-year reports show you’re behind on planned profit, there is still time to fix the underlying problems and end the year where you wanted to be. Additionally, the ability to do accurate job-costing for every job performed can help you make sure your estimating is accurate, so you won’t be at risk of continuing to estimate and sell jobs at a loss all year long.

Although my first accountant wasn’t really the right accountant for my business, he did give me some great advice that changed my thinking as well as the trajectory of my business and its profits. He said that rather than spend a lot of time and energy trying to cheat the government and avoid paying taxes, why not instead prioritize and invest that same time and energy into strategically growing my business, so I actually earn way more money.

It was great advice. And, because of his advice, I paid way more in taxes the rest of the years I was a remodeling business owner. QR

Shawn McCadden is a speaker, business trainer, columnist and award-winning remodeler with more than 35 years of experience. He can be reached at

Related Posts

Leave a Comment

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More