Most small business owners don’t have a background in accounting. But understanding the basics of how to manage your finances is crucial to the success of your business.
According to Accounting Today, only a third of small businesses in the United States use a bookkeeper, and slightly under a quarter hire an accountant. According to the same report, 66% of small business owners have no plans to hire an accountant.
Many business owners are dealing with a slew of duties, including bills, invoicing, issuing checks to staff, and dealing with past-due accounts, to name a few. While this approach may work for small organizations, it usually leads to accounting mistakes that stifle growth and take time and mental focus away from other vital aspects of the business.
Here are the top 7 accounting mistakes we see that hit small businesses hard.
1. Failing to hire an experienced finance professional
Hiring a professional can help you avoid costly mistakes in key areas including expense tracking, timely payment of vendors, bank account balancing, and payroll management. Certified public accountants can help with tax planning and identifying trends — as well as avoiding mistakes – in your bookkeeping.
2. Not tracking business costs accurately
When records are not kept accurately, accounting and bookkeeping lose their effectiveness. When this happens, your company is at risk of losing money, falling behind on crucial bills, setting yourself up for tax season difficulties, and other issues that can hinder your business development.
It’s important that your accounting system, whether it’s just you and a spreadsheet or a team of bookkeepers, keeps track of every transaction so you can accurately assess the health of your company.
3. Mixing personal finances with business accounts
Get off the habit of using your business and personal bank accounts in your business. Create an entirely separate bank account for your business and save yourself the headaches in the future.
4. Inefficiently managing billing
Cash flow is critical to a company’s ability to operate from one day to the next. Billing or invoicing clients correctly goes a long way toward ensuring that your revenue arrives on schedule, allowing you to use it for costs, payroll, and other purposes.
5. Not properly planning for tax season
Every now and again, everyone becomes complacent regarding receipts and records. The easiest way to avoid mistakes and oversights is to make sure your business is using an accounting system that seamlessly manages business spending, payroll, and other essential profit and loss statement components.
6. Failing to classify employees properly
Employees, freelancers, independent contractors, and gig economy workers are all used by small firms to get the job done. If they designate these people incorrectly, they risk facing litigation and tax fines. To avoid misclassifying employees, decide whether they are regular employees or contractors based on the work they do, how they are compensated, and their connection with your organization. Once you’ve made that determination, make sure the worker fills out the correct documentation based on their classification.
7. Going paperless without a backup
A tax audit is the last thing a small business owner wants to deal with. However, if you do have to, the more documents you have, the better. It’s reasonable that in this digital age, where everything is stored in the cloud or on an app, individuals don’t save their papers for more than a few weeks, let alone seven years, but the IRS will require it during an audit.
Silicon Harbor Business Services is based in Mount Pleasant, SC. We provide solid, practical advice to small business owners and select individuals. We work with Quickbooks Online, Quickbooks Desktop, and Quickbooks Enterprise.
For a complete list of our services, please click here. Reach out to our team of Business Consultants at Silicon Harbor Business Services in Mount Pleasant, SC if you have any questions about online bookkeeping or business consultancy. We’d love to hear from you!