When you run a small business, accounting mistakes can be devastating. Little errors in finances and tracking your accounts can have a long-term impact on your business in a way they would not on larger companies. A bounced check could end up costing your company hundreds of dollars in fees, if it impacts other pending payments.
Thankfully, many of these potentially devastating mistakes can be avoided with a little planning and a more proactive approach to your internal accounting practices. Here are some common accounting mistakes made by small businesses.
1. Treating bookkeeping like an afterthought
It is easy, as a small business, to try to keep prices and costs low by doing as much as possible in house with your existing staff. This may mean that you are the one who ends up handling the bookkeeping. With all of your other responsibilities, it can be tempting to perpetually put off your obligations when it comes to bookkeeping. This is a terrible mistake, however, as memory fades with time. What seemed clear when you initially saved the receipt may be easy to forget about down the line. Prioritize your bookkeeping. If you can’t do it daily, then make sure you do it at least weekly, no matter what.
2. Reporting income before it’s in your account
If you accept a contract that will bring a substantial profit, it can be tempting to record the contract and the profit from it. There are a number of reasons why you might want to do this. It can help make you look more stable to investors or bankers. It can make a big difference to your quarterly reports, taking your business out of the red and into the black. However, in the time between the contract and its completion, many things can go wrong. Your costs could go up. The other company could go out of business. Any number of issues could prevent your company from actually getting those profits.
3. Not verifying your books against your bank balance
Especially if you are particularly fastidious with your bookkeeping, it may seem redundant or like a waste of time. However, failing to do so on a regular basis can wreak havoc on your finances. Is it possible there was an automatic renewal on a business service that you’ve forgotten? What about the possibility of chargebacks and bounced checks written by your customers? Any of these things and many others can create a substantial discrepancy between your internal financial records and what is actually available and liquid in your bank account. Avoid these issues by comparing the two weekly.
4. Not hiring a professional for bookkeeping and taxes
As noted above, the smaller your business is, the more likely you are to try to handle as much as possible in house to keep your overhead and costs as low as possible. However, when it comes to bookkeeping and accounting, particularly tax accounting, failure to work with a seasoned and licensed professional could result in an increased tax liability or even penalties if you make mistakes in your filing. A skilled, education tax prepared or bookkeeping professional can help you streamline your business without adding the expense of an extra salary. They can protect you from costly tax mistakes!
5. Failing to develop and maintain budgets
Particularly if your work is project or contract based, if you fail to create a budget for each project, you could be overspending on supplies and labor while simultaneously under charging or under quoting your clients or customers. The best way to avoid these issues is to create specific and highly detailed budgets for each project, while ensuring your pricing on supplies and labor is as up to date as possible.
If you’re worried about making costly mistakes in your accounting, let us handle it for you. Contact us today to talk to a specialist or to find out more about how our team can help yours.
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