Did you know that only one-third of businesses survive their first 10 years of operation? It’s not hard to imagine why—running a business is tough, and it poses a lot of unique challenges, many of them financial.
But by properly managing your business’s cash flow and expenses, you’re getting ahead of the game and addressing one of the most cited reasons for business failure: financial mismanagement. Many businesses, however, are still making common accounting mistakes that keep them from truly getting a hold on their finances.
So, what are those mistakes? Keep reading to find out five small business accounting mistakes to stop making, or to avoid all together!
5 Small Business Accounting Mistakes
There are many mistakes that businesses can make when it comes to accounting, but a few stand out as particularly troublesome. Here are some of the most common accounting mistakes that could harm your small business:
Not Hiring Accounting Professionals
Hiring is expensive, so it can be tempting to take accounting matters into your own hands instead of hiring a dedicated professional. But when it comes to your small business’s finances, you can’t do it all yourself.
This is why you need an accounting expert to help keep track of your company’s financial health. They can use their niche skillset to accurately budget your expenses, forecast your financials, and provide you with key financial insights that lead to better business decisions!
Also, accounting is a complex process, and even small mistakes can be costly. If you’re not letting a professional lead you through the process, you’re increasing your chances of making mistakes. You need the expertise, precision, and accuracy that accountants offer.
Not Using Accounting Software
Every business should keep physical copies of their financial records for at least seven years following their creation. The Internal Revenue Service (IRS) may request such documents during an audit, and you don’t want to come up empty-handed.
Even so, accounting software can be incredibly useful to your business—and many people consider it a must. Digitizing your accounting process with software like QuickBooks or Xero can help you:
- Avoid accounting mistakes caused by human error
- Save time and improve accuracy
- Streamline communication between accounting, sales, and other teams
- Improve tax compliance
Neglecting to Prepare for Tax Season
Proper tax season preparation is essential for small businesses to avoid penalties, take advantage of deductions and credits, and plan for a successful future. But while the official tax season may be limited to just a few months, tax preparation is a year-round process. This means you need to ensure you’re keeping accurate records of your income and expenses throughout the year, preferably through the use of an accounting professional.
You might even consider hiring a dedicated tax specialist to help support your business during tax season. They can help you:
- Review income statements and other important financial records
- Verify financial information
- Uncover potential tax deductions
- Ensure you don’t pay unnecessary taxes
- Prepare and submit tax returns
- And more!
Mixing Your Personal and Business Accounts
Small businesses—or any business, really—should think twice before making a personal purchase through their business account (or vice versa).
For starters, if your personal and business funds are mixed, it can be difficult to tell which expenses are deductible. This can lead to a slew of unwanted legal and tax implications and cause you unnecessary stress come tax season.
Worse, mixing accounts can also make it harder to establish your business as a separate legal entity, which could endanger your personal assets in the event of a lawsuit or bankruptcy. Needless to say, you should protect yourself and your business by avoiding this small business accounting mistake.
Not Automating Invoices
For small businesses, it’s imperative that cash flow is succinctly managed since every dollar counts towards establishing and maintaining your financial health. While there are many ways to achieve an efficient payment and billing system, one action all small businesses should consider is automating invoicing.
By automating your invoices, you’re removing common obstacles that stand in the way of seamless cash flow: human error, the time it takes to process and send invoices, and other roadblocks.
Also, automating invoicing can improve your vendor relationships by enhancing customer experience. They can view and make payments online, receive upcoming payment reminders, and even view their payment history.
Avoid Common Accounting Mistakes and Improve Your Financial Health
In summary, accounting mistakes can be costly and time-consuming for small business owners. But by taking care to avoid these mistakes, you’re setting yourself up for better financial health and a better future for your business.
Not sure where to start? You may need an accounting professional to help you manage your small business’s finances!
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