Accounting is a significant part of any business and should be taken seriously. Small business owners think that they can handle their own accounting so that they save money, but it might not be the best idea. If you make any errors, it can cost your company a great deal. It can impede the growth of your business, so you do not want to make any mistakes.
Here we will discuss the common mistakes that business owners should avoid making.
Managing Everything Yourself
It is common for business owners and entrepreneurs to want to manage everything on their own. Whether it is because you want to save money or because you are passionate about your business and want to be involved in every aspect of it, many feel like they can do everything themselves. However, maintaining everything is time consuming and you cannot handle everything on your own. It is important that you learn how to delegate some of your responsibilities to other people.
It makes sense to hire an accounting expert that will handle all of your accounts. As a business owner, your time is valuable and there will be some areas you will need to seek outside help with.
Seeking the Cheapest Option
Although seeking the cheapest method might make it seem like you are saving money, but in the long run it will end up costing you more money. For example, if you choose a cheap accountant to help you out, he or she might make a lot of mistakes in your payroll taxes therefore you will need to find someone else to step in.
Consider spending a little bit more to get quality work done. Sometimes looking for a cheap solution will result in poor results.
Not Knowing the Difference Between Profit and Cash Flow
Profit is the money that is remaining from sales revenue after the company’s expenses are subtracted. On the other hand, cash flow is the money that flows in and out of the company from financial activities, investment and other operations. Many new business owners think they are the same, but they are clearly not.
Keep track of what you are spending versus what you are selling. It is recommended to review all your financial statements monthly to get a clear sense of the exact situation your business is in.
Mixing Personal and Business Finances
The first thing you want to do when you open a business is to open a bank account for it immediately. Everything from your income to your expenses should be done through this new bank account. You might still be paying out of pocket but keeping record of your expenses is essential because they are valuable tax deductions. If there is no record, you cannot deduct it which cost you a lot of money in tax deductions.
Keep your business finances separate from your personal finances so that record keeping is more concise and stress free. If you are still using your own personal credit card for business purchases, be sure to apply for a business credit right away. You might even get some incentives when you open one up.
Not Using Software or Cloud Technology
Your bookkeeping can be done automatically with the use of software. This can help you bring a high turnaround time so that you have more time to spend on other things like running your business. Take advantage of software or cloud technology. You might be missing out on technology that can help your business more smoothly if you are not using it.
The following documents are what you should have for at least seven years saved in your cloud or software program:
- Business tax returns
- Payroll tax records
- Current employee information
- Business ownership records
- Accounting records
- Records from operations
Not Performing Backups Regularly
Many small business owners and accountants fail to realize the importance of performing regular backups. Be prepared for circumstances that are extreme such as a fire in your office or a flood that wipes all your data and records. It is essential for businesses to have backups for maximum security so that you have access to the data for many years. You should always schedule regular backups of your financial data, even in separate locations so that your data is safe in case of a disaster.
The Bottom Line
Being a small business owner, there a lot of things you need be aware of and accounting may not be in the front of your mind. However, accounting is an essential part of your business and should be seen as an investment. The above common accounting mistakes can happen to anyone, but these tips will make your accounting easier and help you make better decisions.