When it comes to running a business, for example, as the owner, it’s important that you get involved in all areas of its operation. However, it doesn’t mean that you’re an expert in everything. Company founders may wear those customer-relations and strategic hats well, but it can get difficult if they try to wear that accounting hat.
Bear in mind that financial mistakes may affect your business’s growth, clog cash flow, bring to the attention of the IRS, damage your reputation with your team members, customers, suppliers and affect your bottom line.
To avoid the above scenarios, below are ten mistakes that owners make and the reasons why these errors-both inadvertent and calculated-can be so damaging.
1. Falling Behind Your Business Entries and Reconciliation
Time is not normally on your side, especially when you have to deal with many issues in your small business. It means that you can find yourself going for months without making book entries or reconciling your business checking statements, sales tax accounts, credit card statements and other financial accounts. It means that your declarations and reports will not be current. The result is that without this information, you’ll find it a challenge to make sound decisions regarding your business.
For instance, spending money may cause you to have a negative balance and reduced profits the reason being that unpaid involves will have gone unnoticed. Failure to enter financial data can cause problems with supplies since invoices will go unnoticed. The result can be a bad credit rating for your business and difficulties in getting supplies.
2. Struggle to Understand Accounting Software
Some business owners rushing to set up businesses don’t spend enough time to learn the accounting software that they choose. Failure to understand this software leads them to miss important functionality or make mistakes when using it. Failing to set this software up correctly leads to incomplete information and unused financial reporting, resulting in damaging business decisions.
3. Failing to See the Reports for the Tools
Accounting is not just a way for you to enter financial data to fulfill federal and state tax regulations or to know how much money you have in your bank. Instead, it’s an efficient mechanism that ensures provides answers to any questions related to which business owner’s decision are working and which are not.
It’s one reason why you’ll be making huge mistakes if you don’t use the business reports that are made available from the financial data, including how profitable is the company, accounts-receivable aging and accounts-payable aging. These reports enable you to know where the issues are, and which clients are not paying to maintain a cash flow. If the aging reports don’t get produced, the business owner can’t know who’s behind payments, leading them to lose customers who aren’t happy.
4. Mixing Personal Finances and Business
One common mistake that company owners make is mixing personal finances with business. Ensure you keep them distinct and separate to have an accurate record of what your business used and what was meant for private business.
The IRS may understand that certain numbers of meals per month may be business related. On the other hand, the video games on your credit card or concert tickets cannot apply. The business may be affected since the owner is spending more of its money on personal life that reinvesting it to grow the company.
The best is to hire accountants to maintain separate accounts to ensure you look at the business as an independent entity as compared to viewing it as an ATM. It enables your business to provide you with a steady income while you grow it.
5. Trashing Receipts
Your business paper trails count, even those that can become digitized. It means that you need to retain your receipts since they provide answers to any gaps and mistakes in your accounting records. Receipts also provide deduction tax opportunities when tax time comes.
If the IRS comes, these receipts provide proof of numbers of your business financial statements, meaning that failure to have them can make the IRS view your entries as changing taxable amounts. The results can be penalties.
6. Making Mistakes in Your Math
Math mistakes can happen quite quickly, for example, while rushing to make your books after a long day. Even when using automated accounting solutions, mistakes happen. Math errors can also result from making typos or posting entries to the wrong account.
If you combine the initial accounting mistake with others, it can lead to a financial disaster since math errors can go unnoticed for months if you don’t have accountants to check them regularly. Ribeyre Chang Haylock Accountants Located in Coquitlam, BC see accounting mistakes at the #1 issue when it comes to DIY accounting. People who do accounting themselves do not tend to double check their math. This can lead to some catastrophic failures in your math.
7. Looking At the Short Term Only
The day-to-day running of your business may make to become fixated on the short term and forget about the future. Bear in mind that accounting also involves forecasting your future business growth and knowing any financial risks from current results or financial decisions.
It means that you need to look at long-term accounting solutions, opportunities and issues for company growth. Ensure you pay attention to operational concerns, for example, the need to add more accounting staff if you’re expanding.
8. Hiring the Wrong Person
Avoid hiring individuals with no experience in accounting since they end up creating financial problems or making uninformed decisions. Make sure you hire professional accountants who understand tax laws, currency exchanges and invoices.
9. Having the Mentality That Technology Is Always the Solution
Ensure you chose the technology that matches your type of business and individual needs. The best way is by seeking the services of an accounting professional that can carry out strategic thinking, proper planning and research to ensure that the technology doesn’t end up creating accounting mistakes.
10. Not Moving On
As your business grows, ensure that you hire accounting professionals who understand invoicing and other accounting solutions. It will enable you to concentrate on other duties that you do best.
When running your business, remember that the financial side can make or break it. Knowing when to hire accounting professionals or use technology tools in the areas that you struggle with can be one way to help you grow it. For more tricks on how to enhance your accounting, check the article on seven accounting formulas that business owners should be aware of.