5 Common Accounting Mistakes and How To Avoid Them
5 Common Accounting Mistakes and How To Avoid Them
Accurately managing the money that comes in and goes out is one of the most important aspects of running a business. Unfortunately, many small businesses are making mistakes without even realizing it. The first step in avoiding mistakes is recognizing what the common ones are. This article will guide you through the five most common mistakes small businesses make and how to avoid them.
First, not hiring a professional can seem like an obvious mistake; but many people think just using accounting software is enough to get by, or that they can do it on their own. This is not the case, and doing so can take up hours of your time; time that you are not focusing on your business. Your job is to run your business, and by having a professional manage your bookkeeping/accounting you have more time to focus on growing your business.
Second, opting for less expensive methods can seem like a good idea, but can potentially hurt your business in the long run. For instance, it is time for you to make a new hire. The two candidates you are considering have differing qualifications, and different salaries; one earns $40,000 and has a three of years experience and the other earns $70,000 and was a senior controller. You decide to save money and hire the candidate for $40,000, but while they are good at managing your accounts, they lack the ability to maximize your finances. You saved money in the short term, but sacrificed your company’s financial strength by not hiring the more experienced person.
Third, not keeping receipts can also damage your business. You have a business to run, and lots of paperwork to keep up with; it is easy to accidentally throw those receipts away or lose them among the vast amount of paperwork you have. But, keeping all the receipts you accumulate and having a correct expense statement is important to keep your business records accurate. Another danger of not keeping all your receipts is the IRS; they frown on not having receipts to support expenses. Save yourself the future trouble, and keep up with your receipts now.
Fourth, data entry errors are an easily avoidable, yet common, mistake. Checking your work is good, and double-checking is even better. Having someone else review is also a good way to catch errors you may have missed. This is an easy mistake to fix; always double-check your work to make sure you have not made any errors.
Last, combining personal and business finances can potentially be harmful for your business. It is never a good idea to use a single checking account for business and personal finances, especially when expenses start to co-mingle in your company’s books. This can lead to several problems, including greater taxes if the IRS sees personal finances being claimed as business expenses. Avoid all these problems by having separate accounts for your business and personal finances.
These are some of the most common, but certainly not all, mistakes that many small businesses make. Along with having the right accounting support, knowing these mistakes can exist will help you avoid them.