Posted by Michelle Schusterman on Wednesday, April 29, 2015 - 14:00
Risk is an inherent part of launching any new business. No matter how carefully you prepare, things can go wrong. However, many new business owners are guilty of making seemingly small accounting mistakes that have a big impact on the health and longevity of your enterprise.
Here are 10 common accounting mistakes that hinder small business opportunities — and a few solutions that might help your business thrive:
1. Data entry errors. One wrong number or misplaced decimal point on your balance sheets can result in massive penalties and interest charges.
2. Counting sales as revenue too soon. A company’s first sale is exciting, but don’t forget about the possibility of returns. Recording a sale when the product hasn’t been delivered yet is misleading and will make it difficult for you to establish an accurate sales forecast.
3. Not asking for clarification. Business savvy is not the same as accounting acumen. If you don’t grasp what your accountant is telling you, ask for clarification and take steps to educate yourself so you can make informed decisions.
4. Not keeping track of receivables and payables. Keeping the books balanced is a bigger challenge than many small business owners anticipate. Regularly schedule time for reconciling account receivables and payables to avoid potential headaches down the line.
5. Not hiring a professional to handle taxes. The idea of doing your business’s taxes on your own to reduce expenses can be tempting. Resist that temptation. The stress and hassle of keeping up with evolving tax laws and tracking all of your deductions just isn't worth it. Add to that the potential cost of penalties if you make a mistake, and it just doesn’t add up.
6. Not recording cash expenses. Charges made through cards or checks are easy to track, but don’t forget expenses paid in cash. An oversight of this kind could lead to an inaccurate estimate on your annual income and heftier taxes.
7. Misplacing expense receipts. Get into the habit of filing every receipt related to running your business. A little organization will save you from countless tax and cash flow issues in the future.
8. Not having a second set of eyes on everything. Your small business might not need more than one accountant for now, but putting your company’s finances in the hands of one person is never smart. Bringing an additional expert on board to double-check the books will help you avoid accounting mistakes, and curb potential fraud.
9. Not understanding the difference between cash flow and profit. Cash flow refers to the money coming into and going out of your company. Profit is what your company has remaining after deducting expenses. If the two are confused, it’s possible for your business to show a profit without actually having made one yet, which can lead to potentially catastrophic accounting mistakes.
10. Not routinely backing up all financial records. No one can anticipate server crashes, equipment theft, or natural disasters; however, these types of unexpected events could cause your company’s financial records to vanish in seconds. Schedule regular backups of all of your financial data, ideally in separate locations or via a cloud system.
The success of your small business can easily be hindered by unforeseen accounting errors. By hiring the right accounting and finance professionals who have received cutting-edge training, you can avoid these potential financial mishaps and help your new organization thrive.
What accounting mistakes have you narrowly avoided? Share your experience in the comments.