Three Accounting Mistakes that Put Your Business at Risk
Accounting mistakes can impede the growth of your small business and put it on shaky ground. Unfortunately, mistakes are all too common, especially for new or young businesses.
Below are the three most common accounting mistakes small business owners make and insight on how to avoid making these bad-for-business bloopers yourself.
Mistake #1: Not Staying on Top of Receivables
Getting paid is always an exciting part of running a business. What isn’t as exciting, however, is keeping track of your receivables.
When you issue an invoice, a receivable is recorded—meaning that a customer owes you money. Checking your receivable listing you’ll see that customer’s balance as outstanding. As soon as you receive payment from that customer, it should be applied against the invoice to mark it as paid. In practice however, this is easier said than done, and customer deposits are often left to reconcile later on since there’s never enough time in a day.
At tax time you’re left with a bunch of customer deposits sitting in your revenue account and a receivables report that doesn’t make sense. The consequences? Hours wasted updating the receivables listing, overpaying on your taxes, and high bad debts. Making it a point to follow up on your receivables—and apply payments to invoices on a monthly basis—can save you tons of resources in the long run.
Want to skip out on the manual updating of invoices as paid? Consider using a combination of cloud accounting software and accepting online payments, since this process will automate your receivables process, helping you get paid faster and sleep easy at night.
Mistake #2: Not Getting on the Same Wavelength as Your Accountant
So, you’re sitting there with your accountant, in a fancy office, listening to this: ‘EBITDA is strong, way up from last year.’ You shift in your seat. You nod. It continues, ‘Add in D & A, and your bottom line is still positive. And here’s the kicker, thanks to loss carry forwards, tax liability is nil.’
It’s the bane of many small business owners. Not so much the part about meeting with professionals who love spouting jargon and buzzwords. No, that’s not the problem. The issue, actually, is that most small business owners are too shy to tell their accountants that they might as well speak Romulan.
You’re a small business owner. You’re not a financial professional. And nowhere does it say you have to be up-to-date on all the latest accounting blather. Besides, buzzwords, jargon and fancy strategies are why you pay your accountant. Translating all that techno-talk into language you understand should be part of the package.
Think about it. Would you rather hear this? ‘We used accelerated capital cost allowance to bring your tax liability to nil.’ Or this? ‘There’s a temporary tax program that lets us completely write off all of the new computer equipment you buy. So if you need a new IT kit, buy it now cause we’ll use that cost to get your tax bill down.’
Bottom line is, if you and your accountant speak the same language then he/she is part of your team. They are watching your back, and providing advice you can bank on.
Mistake #3: Not Hiring a Professional to Handle Taxes
Small business owners often try to save money by doing their own taxes. In reality, not hiring a professional can cost big bucks down the road. You may not claim all the deductions you qualify for, or you might underpay your tax bill—leading to penalties and other fees.
Spending the money to hire a professional means you’ll have an expert who knows what they’re doing, and can apply the right tactics for your financial situation. They can keep updated on the ever-changing tax laws and help you plan ahead for potential tax hikes.
Paying for a professional bookkeeper can also help keep your costs of an accountant at a minimum, since they do all the prep work. Plus having another pair of eyes is never a bad thing, especially when it comes to finances and taxes. The success of your small business depends on the accuracy and organization of your financial paperwork.