7 Business Accounting Mistakes You Should Never Make
Avoid These 7 Business Accounting Mistakes:
1. Mixing Your Business and Personal Finances
One of the easiest ways to muddle your accounting records is to intermingle your business and personal finances. Deducting business expenses can be very valuable to you when it comes time to pay your taxes, but you won’t be able to do it without accurate records. Running all business-related income and expenses through a dedicated business bank account will help you from confusing these expenses with your personal finances. Additionally, whether you keep digital or paper files, storing your business receipts separately from your personal receipts is typically best practice.
2. Not Saving Your Receipts
To deduct expenses related to business travel, meals, and entertainment, the IRS typically requires you to keep receipts for any transaction greater than $75. While you may be tempted to discard receipts under the minimum threshold, doing so can be a mistake. Since you never know when the IRS will ask for supporting documentation for anything you claim on your tax returns, maintaining documentary evidence can help avoid unnecessary problems. Doing so will also help ensure that you don’t forget to deduct even your smallest expenses at tax time.
3. Doing Everything Yourself
When starting a business, your only choice may be to do everything on your own. However, as you grow, failing to delegate certain responsibilities can result in big problems down the road. That doesn’t mean you need to employ someone full-time – in fact, only 42 percent of small businesses have a CFO or controller on staff, according to Wasp Barcode Technologies’ State of Small Business Report.
Outsourcing accounting tasks to a qualified professional can be helpful from many perspectives. It allows you to focus on things that you do well and gets a fresh set of eyes on the business’s finances.
4. Missing Deadlines
It can be easy to let things slip through the cracks when you’re busy running a business. However, if you find yourself routinely missing important deadlines, you may need to rethink your accounting strategy. Falling behind on bills and other payments not only puts you behind internally; it can be detrimental to your standing with suppliers and creditors, and ultimately weakens your credit score. Not to mention, late payment fees and interest charges are unnecessary expenses that impact your bottom line.
5. Confusing Cash Flow and Profit
It’s possible for a business to be cash flow-positive and unprofitable at the same time. Although you may be generating money from sales and other business activities, you need to account for your business’s expenses to determine if you’re profitable. According to Small Business Trends, 30 percent of small businesses continually lose money. Failing to accurately keep track of all money going in and out of your business can be harmful to your long-term success and may even result in bankruptcy.
6. Working Without a Budget
Every expense matters when you’re trying to grow your business, and you’re more likely to overspend if you aren’t’ following a budget. Keeping track of routine expenditures over time can help you plan for future income and expenses, which is essential for taking on additional projects and expanding your business.
7. Failing to Backup Accounting Software
You should be backing up all business data regularly. Specifically, failing to back up your accounting software can be costly if something unexpectedly goes wrong, especially if you don’t have the documentation needed to recreate your work. Using your software’s automatic backup feature or saving your work to the cloud can help prevent you from losing important files because of a computer malfunction.
The most successful business owners understand that it’s impossible to do everything yourself. Accurate accounting requires both time and expertise. If you find yourself constantly dodging your accounting responsibilities for other tasks, delegating or outsourcing your accounting needs to an experienced professional can help you avoid many of the mistakes small business owners make by trying to do it alone.
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