You may be the savviest businessperson on the planet, but that doesn’t mean you’re an ace accountant. In fact, many entrepreneurs hire accountants and bookkeepers as soon as they’re able to afford it. Until then, they use cloud-based software and outsourced tax preparers to handle their business finances.
Unfortunately, errors are usually unavoidable. Even professional accountants occasionally make mistakes. If you’re lucky, those missteps are small and have little to no direct impact on your business. By reviewing a few of the mistakes that can do major harm, you may be able to watch for them and better protect the company you’ve worked hard to build.
Using the Wrong Software
Automation is key to making your finances manageable without spending a fortune on staff. Using outdated processes like paper-based procedures or spreadsheets can slow your productivity down and make you less professional to your customers and employees. Most importantly, manually tracking your business’s expenses and income can easily lead to errors that will put your business’s customer relationships at risk.
Failing to Track Expenses
You’ll be paying taxes on the money you earn each month, so it’s important to deduct every expense you can. This will minimize your tax bill and help you as you work hard to build your business. To make sure you capture every dollar, invest in an app that will allow you to scan receipts and track every dollar you spend along with the money you bring in.
Missing Filing Deadlines
Tax day should be circled in bright red in your calendar. Throughout the year, you should be working toward tax day by keeping your books in order. Once your business is up and running, you should begin filing quarterly to make sure you aren’t subjected to hefty penalties for underpaying throughout the year. If you can pay your taxes on time, you’ll avoid costly late fees, as well as the stress that comes with knowing you owe the IRS money.
Claiming Sales as Income
When you sell an item or book an appointment, do you log the money immediately or do you wait until the product or service has been successfully delivered? If you’re doing the former, you are inflating your business’s profitability, leading yourself and your team to the misconception that you’re doing better than you are. Instead, you shouldn’t log income until the service has been completed to the customer’s satisfaction or delivery confirmation has been received.
Neglecting Audits
Businesses with sound accounting practices conduct audits on an annual or semi-annual basis. These audits are designed to check internal fraud and employee mistakes, potentially saving a business a significant amount of money each year. If it has been more than a year since your last audit, you should consider putting one together immediately. Go over your books and make sure everything lines up with your expectations. During this time, you should also extract reports and review them to get an overview of your business’s productivity. If possible, turn your books over to a professional accountant who can immediately spot any errors and recommend more efficient processes.
Mixing Business and Personal
In the early days, entrepreneurs often use personal finances to purchase items like office supplies. Once you’ve begun earning money, though, it’s important to separate your business and personal finances. You should acquire a separate credit card, used exclusively for business, and set up an account through which you direct customer payments and pay your bills.
Not Setting a Budget
If you think budgeting is a bad word, you may be missing a great opportunity. When you plan your expenditures each month and work hard to follow that plan, you learn about your business’s cash flow. You also gain a working knowledge of the amount of money it takes to fund operations each month. This information will come in handy when you’re asking for investment dollars and pricing new jobs.
Doing It All
No one person can do everything. While it may save money to do the work yourself rather than hire it out, you’ll actually spend more money in the long run. Hiring someone to pay your bills, manage payments, and track your finances will free you up to spend time on bringing in new clients and growing your business. If you aren’t ready to take on a full-time employee with salary and benefits, consider outsourcing the task to an online worker who will charge you by the task rather than command a salary to sit at a desk 40 hours a week.
Your accounting processes help keep your business going each month. By using the tools available and putting procedures in place to double check your work, you’ll protect your business from costly errors. Technology has made it easier than ever to manage your budget without investing a fortune on a bookkeeping staff.
