When your financial records are clear, it’s easier to pay taxes, avoid penalties, minimize waste, maximize monetary resources, and monitor your business’s financial health. Failing to implement good accounting practices can lead to business failures, including bankruptcy.
1. Failing to Keep Books
Even when entrepreneurs believe their businesses are doing well, this can be a false conclusion if they fail to do bookkeeping.
Every month, you should be aware of how much money has gone into and out of your business that month.
Every payment should be categorized and recorded, no matter how small. With proper bookkeeping, you’ll know which aspects of your business are doing well or poorly. This information will be critical when you’re making projections, choosing what activities to focus on, deciding when to spend money, and cutting costs.
Make it a point to constantly update your financial records and books so you’ll stay ahead of your finances.
2. Not Hiring Accounting Professionals
One of small business owners’ most common mistakes is trying to perform their accounting tasks by themselves.
This can set your business up to fail. Even experienced accountants and bookkeepers make mistakes, so imagine how many more errors you can make without proper training. Unfortunately, even a few mistakes can cost you more than simply hiring a professional in the first place. You may decide to hire a CPA or an accountant. There are a few differences between a CPA and an accountant. The main difference is that a CPA will have completed more education, and is therefore able to sign off on audited financial statements.
You should also consider the opportunity cost of your time. It’s easy to procrastinate if you don’t enjoy accounting. Even if you are diligent, could your time be better spent doing other activities in your business?
Paying vendors on time, balancing bank accounts, and running payroll will be easier with the help of a professional. Whether you hire an in-house accountant or a remote freelancer, make sure to verify their qualifications, certifications, and licenses.
3. Combining Business and Personal Finances
You can easily mess up your business by commingling – that is, combining your personal and business finances.
To avoid commingling, open a business bank account as soon as you start your business. Process all business income and expenditures through your business account, and reserve your separate, personal bank account for your personal transactions.
There are exceptions to this rule. For instance, if your business is a sole-proprietorship or single-owner LLC, then you will have to comingle in regards to paying taxes. That is because your business income is reported on your personal tax return. If you have access to tax calculators and other tools, then this shouldn’t pose much of a problem. Tax experts can also take the guesswork out of the equation.
In situations where you need to pay cash, be sure to make a note and follow a system established by your bookkeeper.
4. Bad Communication
Even when you’ve already hired the right professionals to delegate accounting tasks, errors and failures can still happen as a result of poor communication.
Meet with your bookkeeper regularly. Many bookkeepers use an association management solution, like Impexium, for easy management and collaboration. When your bookkeeper emails you with questions or work they need from you, get back to them promptly.
5. Poor Bill Management
A business can’t operate well without good cash flow.
To improve your bill management, invoice your customers immediately after completing a transaction. When a customer doesn’t pay on time, send follow-up reminders every week or two weeks.
To make invoicing easy, use invoicing software, create an organized system, and delegate invoicing to the right person at your company.
Should the worst happen, and you find yourself in a situation where your debts are too much for you, you can speak to a bankruptcy attorney like the attorneys here, who can help you make a plan to move forwards.
6. Not Budgeting Projects
A classic entrepreneur mistake is to take on a project without knowing the costs. This is an easy way to spend more money than you can afford, or not charge enough for the work you’re doing.
Always set up a budget before creating a product or preparing a proposal for a client. If you review your past project budgets and compare them to your actual project costs, you can get a good idea of how much you should pad your budgets to help you earn a positive return on any project you’re planning.
It’s a good idea to share a project budget with your full project team so they can allocate time and resources appropriately. Then, as your project progresses, track your spending and take corrective measures as needed.
7. Math and Computation Errors
It’s common for even professional bookkeepers to make math mistakes like rounding incorrectly or entering figures in the wrong places. Quality accounting software can help you minimize errors. You can also hire an auditor to conduct brief checkups on your books and financial records.
8. Losing Important Receipts
Expenses you incur as a small business owner can be deducted on your taxes. Such expenditures should have separate receipts, which you need to keep and record in your books. Without a receipt, it can be difficult to back up your tax deduction claims.
Unfortunately, receipts are easy to lose. One effective way to keep track of every transaction without the fear of losing any is by using a simple receipt generator. This not only ensures all your tax deduction claims are organized but also digitally secured.