As a corporate proprietor, it is imperative to be involved in all aspects of your operation. Although, that doesn’t mean that you must be an expert at everything. Business holders may wear those strategic and customer-relations hats well, but many have a more difficult time with the accounting side of the business. Even worse, financial mistakes can truly exploit growth or adversely impact your bottom line. It can clog cash flow, attract undue attention from the IRS, or hurt reputations with suppliers, customers, and staff.
To avoid those situations, listed below are 10 accounting mistakes business owners are prone to making and the reasons why these errors can be so harmful.
1. Falling Behind in Entries and Reconciliation
Time is definitely not on the side of the small business proprietor, especially when there may be daily fires to put out. Rapidly, months can pass without making any entries in the books or reconciling any business checking statements, credit card statements, sales tax accounts or other types of financial accounts. This means financial statements and reports are not current. Without up-to-date information, it is challenging to make sound business decisions.
2. Struggling to Be Accounting Software Shrewd
In a rush to get the business set up, some business holders may not have spent the time to correctly learn the accounting software they have chosen. Not knowing what the bookkeeping software is capable of doing means you could certainly make a mistake or miss out on some powerful functionality. Not setting up a software system properly could also lead to unused reporting capability and incomplete information that results in bad business choices.
3. Not Seeing the Reports for the Tools
Accounting is not just an instrument for entering financial data in order to achieve state and federal tax protocols or tell you how much money is in the bank. Instead, bookkeeping is a powerful mechanism that provides answers to questions connected to how a business owner’s tactical decisions are functioning or not functioning.
4. Mixing Business and Personal Finances
One of the most common accounting mistakes business proprietors make is to mix their business and personal finances. Keep these separate and distinct to provide a more precise track record of what was really used for business and what was specifically related to personal use only.
5. Throwing Away Receipts
Paper trails still count, but even those can become digitized. However receipts are kept, the point is that they need to be recollected. Receipts provide solutions to any mistakes or gaps in bookkeeping records and many offer supplementary deduction opportunities come tax time.
6. Making Math Mistakes
In the haste to get the accounts done after a long day, math mistakes can happen quite effortlessly, even when you are using automated accounting solutions. Math mistakes can also result from posting entries to the wrong account or even just making typos.
7. Concentrating Only on the Short Term
With the day-to-day matters of running a business, it is easy to preoccupy in the short term and completely forget about the future. Bookkeeping, though, is not just keeping track of today’s statistics. It’s also about estimating future growth and recognizing any financial risk from current financial decisions or results.
8. Hiring the Wrong Person
The wrong person can create financial problems that go beyond just making uninformed resolutions. In reality, trying to save money or help a loved one out can truly lead to audits or penalties. Employing the wrong person can create issues that haunt your business for many years to come.
9. Thinking Technology Is Always the Answer
Tossing money at technology does not guarantee accounting mistakes will be evaded. After all, you still need to make the technology work properly. Also, not all technology was generated equally or is relevant to a specific business.
10. Not Letting Go
As a business proprietor, there are circumstances where not getting professional help is a major blunder. It is okay to confess that accounting may not be your area of expertise. You likely started a company with a great idea or solution that had nothing to do with accounting and that is where you should focus.
The financial side of running an industry can make or break your business. Learning when to use tools or professionals to help in areas you struggle with can be one of the biggest make or break decisions for a company.
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