Most small business and startup owners aren’t familiar with the various accounting principles they should be following. Being aware of these simple-to-avoid mistakes can prevent lots of headaches in the future.
So, what should you be avoiding?
5 Small Business Accounting Mistakes to Avoid
Here are some small business accounting pitfalls to avoid to keep your business running smoothly.
1. Mixing Personal and Business Expenses
It can be tempting to lump all of your personal and business expenses together into one list and worry about sorting through them later. However, humans are often forgetful. It becomes difficult to remember if that purchase from Target on May 14th was for paper towels for the office or a new set of Tupperware at home.
The best way to avoid the hassle of sorting expenses when tax-time rolls around is to keep two separate accounts – one for personal expenses and one for business expenses. Setting your accounts up like this right now will save you lots of time and energy in the future.
2. Not Keeping Track of Expenses
A cause of major concern for many small business owners is losing track of their expenses halfway through the quarter. It can be especially difficult to stay on top of recording cash expenses, since they can slip through the cracks in this digital age.
Be sure to find a process and system that works for you, so that you can keep an accurate record of your finances. And be sure to track your expenses as soon as possible!
3. Trying to Do Payroll Yourself
Many small businesses with employees end up running into trouble with their payroll. Trouble can stem from losing employment data, not accurately tracking hours work, or even failing to submit mandatory reports to relevant authority (including the IRS). All of these issues leave a big mess that can be hard to sort out.
If you have employees, the best way to stay on top of these things is to use a dedicated payroll service or payroll professional to help you set up and manage your payroll account.
4. Failing to Safely Store Financial Records
Many small businesses only keep one copy of their financial records, and it’s usually all in one place – a computer, filing cabinet, or a pile on your desk. Not keeping multiple copies of your financial records opens you up to extreme risk of data loss. Imagine if you kept all of your records on your local computer. Suddenly hardware damage occurs – you could possibly lose all of your financial records.
The best way to avoid this is to safely store your records in multiple places. That way, if something were to happen, a copy can easily be retrieved.
5. Not Working with a Qualified Accountant
You may think that you’re saving money by handling all of your finances by yourself, but you could actually end up losing more money in the long run. The best way to make sure you don’t miss any crucial details is to work with a qualified bookkeeper or accountant. That person can help you stay on track to meet your business goals and look for potential ways to save money.
A Little Preparation Goes a Long Way
By staying on top of your finances, you can be sure that you’re setting a solid foundation for your business to stay healthy. An efficient accounting system goes a long way toward keeping things running smoothly, and avoiding the common mistakes we just discussed can help you do just that.
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