If you’re a business owner, the last thing you want to do is sit in the back office crunching numbers and figuring out your company’s expenses. Instead, you’d rather be on the floor, interacting with customers, and getting your product or service out into the world. Unfortunately, accounting is inevitable, and many small business owners make careless mistakes that either cause headaches or worse, force them to close their doors.
As a small business owner, make sure you stay aware of these seven common accounting mistakes, so you don’t find yourself in any trouble.
1. Staying Unorganized
Organization is key when it comes to running a small business. Not only does your inventory have to be fully stocked and all your employee paystubs issued on time, but your finances need to be in check, too. By staying organized, you’ll have all the information you need to make budgets, manage your company, and file your taxes. To stay organized, use online bookkeeping software to itemize all of your company’s transactions.
It’s also important to use a company credit and debit card for all business expenses. It can be easy as a business owner to make a purchase on a personal credit card, but separating the two will ensure auditors don’t question you.
2. Not Understanding Their Financial Standing
Whether you run a bakery or own a small contracting service, understanding your financial standing can be mind-boggling. However, knowing the difference between a balance sheet vs. income statement will help improve your business accounting operations. In short, a balance sheet is a financial statement that captures your business’ current financial standing at any given time. This includes all of your business’ assets, liabilities, net worth, and equity for internal and outgoing funds.
On the other hand, an income statement is merely just your company’s profits and losses over a period of time. Your income statements can be divided any way you please, but most common are monthly, quarterly, biannually, and annually. Your income statement will show you how your revenues are transformed into your net income or profit. This is important because it shows you the profitability of your company but doesn’t show the money you receive or the money you owe.
3. Making Math Errors
Math errors are common, and more often than not the IRS will make corrections to those errors for you. However, you should never rely on agencies to make these corrections, as they can also miss an error you made. Additionally, multiple errors can raise concerns among the IRS, leading to a potential audit. Other math errors include rounding numbers, making a typo, putting a number in the wrong column, and so one. Always recheck your work or have a fresh pair of eyes review your finances for you.
4. Unwillingness to Delegate
It can be hard for you to let go of the reigns and give responsibility to someone else, especially when it comes to your finances. However, an unwillingness to delegate tasks that aren’t in your wheelhouse can lead to errors and miscalculations that can end up hurting your company. Not many business owners have the toolset or qualifications for accounting, so using an accounting service or hiring an accounting professional can save you time and money.
5. Falling Behind
It’s easy to fall behind on important paperwork, especially when the paperwork as to do with math and money. Sure, the whole point of a business is to make money, but taking time away from your craft to handle finances can be a drag. It’s important, however, to not fall into this mindset. Falling behind on your finances can cause major financial difficulties. Over time, you may forget about a purchase you made, money you owe, and so forth. Without up to date bookkeeping and accurate data entry, it will be hard for you to make sound business decisions.
6. Intertwining Business and Personal Finances
As they say, never mix work with pleasure. Not only does mixing business and personal finances make keeping track of your business expenses hard to differentiate, but it can also raise a major red flag with the IRS. Whether you work in an office or work at home, keep everything separate.
7. Misplacing or Losing Receipts
Receipts are your best friend when it comes to accounting, and especially as you do your taxes. As a small business owner, you can write off business expenses such as tools, repairs, insurance, supplies, and so much more as deductibles when you file taxes. However, if you don’t have a receipt, it will be hard to prove this to the taxman when he comes knocking at your door.
Additionally, keeping receipts will allow you to track your business expenses as well. To stay organized, invest in cloud-based software that allows you to scan and digitize all of your receipts, so you know they’re safe and secure online.
The Bottom Line
To run an efficient business, it’s important to stay on top of your finances. Common accounting mistakes like these can send your business spiraling out of control.
