Top 10 Small Business Accounting MistakesPat Fontana
Managing a small business is difficult enough these days. As a small business owner, you need a clear picture of your company’s financial health to determine whether additional steps should be taken to ensure its continued success. You should also be aware of the top 10 small business accounting mistakes that can make that picture murky or even inaccurate, affecting your business operations and perhaps its future.
The image of the cluttered desk may be amusing to some. Piles of papers are not a good way to maintain your business records, though. As a small business owner, you need to know every day where your organization stands in terms of expenses, income, and profitability. Get your papers and your electronics records organized so you’ll know where important documents are located at any given moment.
Simple Math Errors
One of the top 10 small business accounting mistakes is often overlooked. Even when using accounting software programs, simple math errors can occur that can significantly change the bottom line, at least on paper, for your business. Check and recheck calculations to make sure you’ve clicked on the right selection or added the line items correctly.
Not Recording Small Transactions
Petty cash transactions are just as important as the larger expenses when it comes to your small business accounting records. When you stay on top of the smaller transactions, recording them as they occur, it’s easier to manage the big ones and you’ll also be better able to manage your books as your company grows.
Understanding how much you are spending on which items or services as well as where revenue is coming from can help you budget for future growth as well. Creating duplicate categories or failing to enter expenses into the appropriate category can become huge mistakes for your business. Keep your categories simple and straightforward for a clearer financial picture.
Misclassifying People Who Work for You
Not understanding the difference between employees and independent contractors can cause serious issues for your business, including tax penalties and even lawsuits. Clearly classify each individual or organization that works for you and with you, researching the guidelines for classifying part-time and full-time employees and freelance help.
Understanding Profit and Cash Flow
There is a significant difference between profit and cash flow, and it is critical that you understand how each impacts your business finances. When you close a new deal or secure a new client, you may be tempted to record the full amount as profit. However, you may have expenses as part of the project and those will need to be calculated into your profit amount. Recording income before the project is complete is one of the top 10 small business accounting mistakes you can make. It can make your company seem healthier than it truly is, muddying that financial picture you need for your business.
Not Staying Current on Paperwork
As a small business owner, you have a lot of responsibilities. Keeping your financial records current may be low on your priority list as you manage employees, market your business, and conduct daily operations. However, you need to stay on top of paperwork, both for expense records and for revenue. Getting behind on sales tax payments, bill payments, and customer billing can seriously affect the financial health of your business.
Failing to Reconcile with Bank Accounts
When you reconcile your books with your bank account balance, you are checking that the account balance on your books is accurate and that it matches the balance shown on your bank statement. When you fail to record those small transactions or make a math error, the bottom line can appear to be different from what is actually in the bank. When you regularly reconcile your accounts, you can accurately track your financial situation.
An Unwillingness to Ask for Help
One of the top 10 small business accounting mistakes you can make is to try to do it all yourself. When you are unwilling to delegate the accounting task to a professional, you can make many more mistakes. You have to focus on the core functions of your business and may not have the time or the expertise necessary to complete the recording and reconciling responsibilities in a timely manner. Letting accounting tasks slide and making accounting mistakes can significantly affect the financial health of your business.
Not Communicating with Your Accountant
When you do secure the assistance of a professional accountant, you still have responsibilities. Communication is the key to keep everyone on the same page, to minimize errors, and to ensure your financial picture is accurate and helpful for your small business. Expenses, small and large, as well as revenue should always be reported to your accountant in a timely manner so the accountant can do the job that is necessary to make sure your small business records are accurate.
CONTACT CLEAR VIEW BUSINESS SOLUTIONS FOR SMALL BUSINESS ACCOUNTING HELP
The professionals at Clear View understand what it takes to maintain accurate, helpful financial records. We will work with you to help ensure your financial records are in good shape so you can focus on your business operations. Learn more about how we can help you and your business by contacting Clear View Business Solutions to speak to our team about our services. Give us a call at (520) 544-0177.