There are a few things that are as important to business owners as having proper accounting support. For most entrepreneurs, doing the accounting for a small business is the least pleasant task. You’d much rather be reaching out to clients, making sales, or networking with other owners. There are so many things that need to be done to run a lucrative business. But not many of us want to sit down and look at our finances.
The reason for this is that accounting can often be intimidating, especially if mathematics isn’t your strong suit. Sometimes it’s hard to understand which financial documents to keep and which ones to toss. Then there are all the worries. Are we getting our maximum refund available? Is there something that we could do to keep track of our spending more effectively? How much of a profit are we making? And finally, who understands the current tax laws? While bookkeeping does seem like an unruly pile of receipts and bank ledgers, with a little help it can all be easily managed.
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There are professional bookkeeping services that can help you with your business finances no matter how small or large your business is. These professionals can help you manage your financial information so it’s less overwhelming for you and your employees. When you’re building or expanding a business, having someone else take a look at your books can alleviate some of your worries. When you utilize accounting services for small businesses, you won’t have to be concerned about the various money errors that can occur.
Messy, Inaccurate Bookkeeping Can Harm Your Business
Sure, accounting is largely basic arithmetic. Because of this, it seems like a simple project to do the bookkeeping yourself. A few minor mistakes couldn’t hurt your business that much. But, consider this, having an ineffective accounting system is not a good long-term plan. Small inaccuracies in bookkeeping can result in some very serious penalties. Consistently making mistakes can result in the loss of revenue, or even having to submit to an audit or fines from the Internal Revenue Service. An experienced accountant can spot those bookkeeping mistakes and help to save your business.
10 Common Business Accounting Mistakes You Need to Avoid
If you’re considering doing your own bookkeeping, you may wonder what problems might befall you. Here are some of the most common mistakes business owners experience with faulty accounting.
1) Missing or inaccurate adjustments
Not many of us are experts in the most up-to-date tax laws. You spend all your time running and growing your business, so there just isn’t enough time to also learn about IRS laws. This of course means that you may not remember to make the correct adjustments on your yearly business tax return. The IRS regularly updates the types of adjustments or programs applicable to small businesses. If you aren’t aware of the changes, you may not be taking advantage of programs that will help your business this year.
2) Confusing bookkeeping metrics
You may not realize it but your yearly revenue may not be as much as you think it is. You must remember to subtract your business expenses, calculate your profit margin, and consider your net profit after taxes to get the best picture of your true yearly revenue. Without careful consideration of these calculations, you won’t know how much your net profit is per year. Regular accounting sessions can help you have a better understanding of your yearly revenue.
3) Absent transactions
When you’re busy with the day-to-day tasks of running a business, it can be hard to keep track of all the money coming in and out. Saving every receipt, logging every mile driven, and keeping accurate stock counts of your products are all tasks that require precision record keeping. On top of marketing, customer service, networking, and keeping your books accurate, you have your hands full as a business owner. Hiring someone else to do your bookkeeping frees up your time to focus on other vital parts of your small business. You’ll never miss a transaction, and if you do, there will be a second pair of eyes to help catch the mistake.
4) Not comparing the books to the bank account
Has any professional accountant can tell you, even if your books look great, if you don’t compare them to your actual bank account, it means nothing. You’ll have to make sure that you are constantly balancing your business checkbook and keeping track of all transactions. Any employee that has access to your accounts must also do the same. Even small inaccuracies in accounting can complicate your calculations during tax season.
5) Mixing up accrual and cash-basis accounting
Keeping track of transactions should be simple. You sell a product or provide a service and then someone pays you for it. You purchase a business need and give your cash to another party. Cash in, cash out. This is cash basis accounting, and most small businesses record their accounts in this manner. But for those businesses that intend to grow, you’ll need to follow the accrual form of accounting.
This type of accounting can help you make projections about your future monthly income and expenses. Accrual accounting is a more complex type of small business accounting that counts customer sales and business purchases as soon as they are billed, whether or not funds have been exchanged. If this sounds like it can be confusing, it’s because it can be. But a professional bookkeeper can show you how this method can help improve your business over the long term while explaining the fine details.
6) Not backing up the data
Luckily, the days of having actual paper books to keep track of all of our accounting needs are long gone. Now there are multiple software options that a person can choose to help them make sense of their finances. However, the software packages are only a tool. You’ll have to make sure that all the data you enter into the software program is accurate, and also remember to back up that information in several places. Since your business financial information is very sensitive, professional accountants have specialized software that will keep your bookkeeping information safe and accurate.
7) Duplicate items
When you are manually inputting data into your books, human error can cause all types of problems. One of the most simple mistakes one can make is to create duplicate transactions. These cause major problems because they greatly affect the computation of your actual business income. They are not always easy to find, because they simply look like a typical transaction for your business. Bookkeepers are excellent at finding these annoying, small errors before you file your taxes or make yearly projections.
8) Misplacing or losing old records
The harried life of an entrepreneur means that sometimes our record-keeping can be a bit sloppy. While you might think that scanning documents and sending them to the cloud is enough to protect them, nothing is failsafe. If you have no idea what that last sentence meant, then you might still be holding on to hard copies of your financial records, which are even easier to misplace. Accountants can set up a manageable system of recording your financial statements so that they are easily found when needed. They are also able to tell you when records should be discarded, saving you either digital or physical storage space.
9) Correctly setting up your chart of accounts
If you are doing the accounting yourself, you must have an accurate and well-organized chart of accounts. Keeping records in shoeboxes and writing account numbers on cocktail napkins is not well organized. Even if you are a bit more sophisticated in your accounting, you still may not have created a document that lists all your financial accounts. A bookkeeper would be able to list all of your expenses, liabilities, equity, revenue, and assets in a proper, easily manageable digital document.
10) Not leaving it to an expert accountant
There are just some financial situations that you’ll find yourself in that require you to consult with a professional. This doesn’t refer to the occasional arithmetic mistake, but rather those times when your business is contacted by the Internal Revenue Service. Ideally, you would have contacted a small business bookkeeping service before any issues with the government. But if the IRS calls, you’ll need to answer. Before anything becomes a legal liability, it makes sense to contact a small business accountant to go over your accounts and offer suggestions on how your record keeping can improve. It is ill-advised to handle certain situations on your own. Be sure to call a certified public accountant to help with serious financial matters.
Prevent Business Accounting Mistakes With Our Expert Services
Small business accounting doesn’t have to be complicated, but sometimes it can be a source of great anxiety. Balancing the books while marketing, manufacturing, managing employees, and keeping your business in the black is overwhelming. Let a professional accountant take some of your workload and alleviate some of that stress. If you’re about to scale up your business or simply ready to delegate some of your workload, please give Larry L. Bertsch, CPA and Associates a call. We are here to help.