Being involved in all aspects of your operation is imperative as a corporate proprietor. However, that doesn’t mean you must be an expert at everything. Business holders may wear those strategic and customer-relations hats well, but many have difficulty with the business’s accounting side. 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 ten accounting mistakes business owners are prone to and why these errors can be so harmful.
Falling behind in entries and reconciliation
Time is not on the small business proprietor’s side, especially when daily fires are put out. Months can pass rapidly 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.
Struggling to be an accounting software shrewd
In a rush to set up the business, some business holders may not have spent the time correctly learning the accounting software they have chosen. Not knowing what the bookkeeping software can do 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, resulting in bad business choices.
Not seeing the reports for the tools
Accounting is not just an instrument for entering financial data to achieve state and federal tax protocols or tell you how much money is in the bank. Instead, bookkeeping is a powerful mechanism that answers questions connected to how a business owner’s tactical decisions are functioning or not functioning.
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 used for business and specifically related to personal use only.
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.
Making math mistakes
In the haste to finish the accounts after a long day, math mistakes can happen quite effortlessly, even when using automated accounting solutions. Math mistakes can also result from posting entries to the wrong account or making typos.
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 financial risk from current financial decisions or results.
Hiring the wrong person
The wrong person can create financial problems beyond making uninformed resolutions. Trying to save money or help a loved one out can lead to audits or penalties. Employing the wrong person can create issues that haunt your business for many years to come.
Thinking technology is always the answer
Tossing money at technology does not guarantee accounting mistakes will be avoided. 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.
Not letting go
As a business proprietor, there are circumstances where not getting professional help is a significant 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.
Conclusion
The financial side of running the company 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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