7 Most Common Small Business Accounting Errors
Your small business runs on the principle of efficiency. You work hard, and you do what you can to make sure everything goes smoothly. You provide a quality product or service to your client, and you accept a reasonable fee for doing so.
Yet, there are some aspects to running a business that business owners just seem to get wrong. Most of us aren’t accountants, for example, which means we make lots of accounting errors.
Fortunately, there are some things you can do to identify those mistakes, and to keep them from happening. Here are some of the most common small business accounting errors:
1.Doing it yourself. Some business owners have a background in accounting, or they’re in a business type that doesn’t require anything complex in this area. Most small businesses, however, could benefit from outside expertise. On top of that, even if you are capable of doing the accounting yourself, don’t you have other things to do? As a business owner, you wear many hats: salesperson, business manager, assembler, driver, and more. If you can take accountant off your list, you can focus more on doing the things in your business that you do best, or that only you can do. Sometimes the best way to avoid accounting errors is to hire an expert tax professional.
2.A lack of formal procedures and policies for accounting. If you have multiple employees in your business and they each deal with one or more aspects of accounting, you need to have formal policies and procedures in place. Some of the most common areas that will need attention include expense reimbursement, petty cash, client filing systems, and even financial communications within your business. Make sure that your accounting policies and procedures are designed around a solid business system, rather than around the specific personalities or skillsets of given employees. Employees may change, or become ill, and you’ll need those policies and procedures to bring someone new up to speed.
3.Shoebox accounting. Today, there is no compelling reason for anyone – business or individual – to use “shoebox” accounting. Shoebox accounting is where you store receipts and other paperwork in a loosely organized fashion, and then panic at tax time. This a a perfect formula for making accounting errors. Business-quality software like QuickBooks is relatively inexpensive and very user friendly. You or your staff can be up to speed with these applications in a matter of hours.
4.Ignoring basic bookkeeping steps. For most business owners, this is simply a sin of omission. They don’t worry about reconciling their personal checkbook each month, and so they may let the business checkbook slide as well. This is a big mistake, and can lead to accounting errors, cash flow problems, and missing out on some important tax deductions.
5.Being unaware of current accounting rules. The IRS wants specific information in the event of an audit. You need to be able to prove your deductions, and do it in the way that the IRS requires. There are other issues regarding accounting errors, rules, and regulations, as well. For example, if you classify an employee as a contractor when they should be an employee, you can wind up facing both legal and tax issues.
6.Not backing up financial data. You need to make sure that your bookkeeping system is backed up. That means if you have a paper bookkeeping system, you need to make regular copies and store them in a secure location. For electronic bookkeeping systems, it’s easier. You can back up your financial data to an online storage service, such as Dropbox, for example.
7.Not keeping your finger on the financial pulse of your business. Regular accounting does a number of things for you in terms of how your business is operating. First, it lets you know where your business stands overall (i.e. whether you’re losing money or making it). On top of that, however, accounting can tell you what parts of your business work the best, which ones are most profitable, and which ones may need the most help. By not devoting enough time and energy to accounting, you miss out on significant business data that could be used to help your business.
As a small business owner, you have bigger things on your mind than accounting. You’re out to make your mark on the world, get your product out there, and make a living. Accounting, however, is an integral part of that overall process. Accounting errors can cost you thousands of dollars in missed tax savings alone. Take some time today to address each of these common small business accounting errors.
Find a tax professional near you.
[IMAGE CREDIT: Some rights reserved by Andrew Michaels]
