Small business owners are expected to wear many hats and understand all aspects of their company. From sales and customer service to tax records and bookkeeping, most small business owners would like to think they can handle it all.
While you can get your business off the ground bootstrapping and stretching resources, at a certain point, you’ll hit critical mass and actually start hurting your business’s production and profitability when trying to do too much.
In fact, small business owners should not try to take on more tasks. Rather, they should look for strategic partners that specialize in different business areas to help run a more efficient and profitable business.
One of the most important areas of a small business that can often go neglected is the accounting department. Whether you look for outside help and hire a local CPA Firm or decide to tackle your bookkeeping, tax, and audit tasks yourself, there are some common pitfalls of which to be aware.
Below are five typical accounting pitfalls for you to avoid as a small business.
Stay Up-to-Date and Don’t Fall Behind
It’s imperative that you don’t fall behind on your bookkeeping and keep your financial statements up-to-date throughout the year. It can be very easy to neglect your day-to-day recordkeeping; but if you want to avoid costly errors and optimize your business tax returns, you should make sure you avoid falling behind with your data entry.
Updating financial records won’t just help your small business during tax season, it’ll help you optimize your bottom line. For instance, if you’re not tracking your paid and unpaid invoices properly, there is a good chance that you may overlook an unfulfilled invoice for a client.
This receivable could be the difference in whether your business stays cashflow positive and if you’re not keeping clean records, this revenue could get lost in the mess.
Separate Business and Personal Finances
Many small business owners self-fund their company and continue to put personal investments back into the business. Thus, it can be very difficult for some owners to separate their personal and business financials. However, overlapping personal and business finances can be one of the biggest accounting pitfalls for a small business.
You and your business are mutually exclusive entities and from an accounting perspective, it’s critical that you treat it as such. Keeping your personal and business finances separated will mitigate the risks of an IRS audit and provide you more clarity of your business cash flow. Not to mention, when it com
Not to mention, when it comes time to file your tax returns, clean records will help you optimize your tax deductions and write-offs.
Keep and Organize Your Receipts
Organization, or lack-there-of, is a common trend in accounting pitfalls. This is particularly true with regards to business receipts. Receipts validate and corroborate your numbers and financial records. Not only are they important for internal recordkeeping, but they can also help resolve any disputes with vendors on accounts payable.
Because many small businesses are looking for ways to leave a smaller footprint with respect to paper trails, many receipts can be recorded digitally. Regardless of whether you are saving and organizing hardcopy receipts or digital ones, as long as you are taking the steps to track your payments, you’ll avoid any potential mistakes that come with unorganized payment records.
Avoid Careless Mathematical Mistakes
If you’re handling your finances internally, it’s important that you make a concerted effort to avoid mistakes. Mistakes can often happen, especially when you are dealing with numbers and data entry. Moreover, because you likely don’t have a background in accounting and are not a certified public accountant (CPA), you may not be as familiar with the steps needed to accomplish your task.
To avoid careless mistakes, it may be wise for you to find a local CPA to help with your financials. They specialize in areas like tax planning, tax preparation, and accounting services. If you still decide to handle it yourself, just make sure you take your time and doublecheck your data. The last thing you want to do is comb through dozens of pages of numbers to find one decimal that was out of place.
Think Long-Term Not Just Short-Term
Small businesses get caught up in the day-to-day. So much so that they forget to plan or avoid investing in their future. Accounting should be more than just tracking your numbers, it should also be used to help you make strategic business decisions and forecast future growth. CPAs are equipped with the experience and training to look at your financial statements and provide forward-thinking insight that can help you avoid risk, optimize your bottom line, and make long-term decisions. If you want to avoid the pitfall of tunnel vision, you may want to hire a local CPA Firm like Rivero, Gordimer & Company.
The numbers side of your business may not be as exciting as marketing or sales, but it can make or break your small business. The five pitfalls above are common mistakes made by thousands of small business owners every year. To help you avoid the accounting pitfalls remember to stay organized, focus on your future, and hire a CPA Firm when necessary.