During the early years of operation, many small business owners make easily avoidable bookkeeping mistakes which end up costing them money. These simple mistakes are often made because of lack of awareness about proper accounting procedures.
A typical small business owner has no time or inclination to an expert accountant, but he
can still take the necessary steps to avoid a few key pitfalls which may negatively impact the company’s bottom line. The following are some of the accounting mistakes that a small business owner must try and avoid.
Mistake 1: Not hiring a professional
Small business owners are often short on cash, so it is no surprise that they try to do everything on their own. But the truth is, not hiring a professional to do your taxes or bookkeeping can cost you big money down the road. An experienced professional can help you take advantage of the ever changing tax laws and also plan ahead for potential changes. The accuracy of your financial paperwork also has a significant impact on the success of your small business.
Mistake 2: Not keeping track of receivables
You may be doing a lot of business, but if you’re not getting reimbursed within a reasonable timeframe, the business might soon be run into ground. When you sell a product, you issue an invoice and record a receivable. When the customer pays you money, it is recorded as receivable paid against the invoice. Many business owners usually leave the customer payments to be reconciled at a later date, and come tax time they are left with a bunch of payment receipts and a receivables report that makes no sense.
Follow up on your receivables and mark payments against invoices regularly to save yourself time and money. Consider using online payment and cloud accounting services to automate your receivables process.
Mistake 3: Not keeping receipts for small purchases
You may be keeping the receipts for all major purchases, but are you doing the same for small purchases as well? It might not seem like big deal if a couple of cab fare receipts are missing, but these things can add up. Also, you really don’t want to be in a position where you are unable to show proof for expenses claimed in your tax return. Make sure that you have the proof to back up every penny that you claim as expense.
Mistake 4: Not hiring full-time employees
Hiring full-time employees is definitely a more money intensive exercise than hiring independent contractors. But if all your employees are independent contractors, you may have to schedule your work around their availability and how much work they are willing to take up. You have to file Form 1099-MISC if you pay independent contractors. If the IRS decides that you have incorrectly classified an employee as an independent contractor, you may attract penalties.
Mistake 5: Not keeping your books current
The first few years of any business can be a mad rush, but if you neglect to keep your books current it will only worsen the situation. If you’re unable to keep proper records, then it is a clear indication that you need to hire an accountant. An experienced professional can catch costly errors right at the beginning, and help the business operations run more smoothly and efficiently.
These accounting mistakes can happen to anybody, but if you’re aware of it and prepare accordingly, you will be able to maximize the efficiency and profitability of your small business.