5 Critical Small Business Accounting Challenges to Avoid
15 Mar, 2016 / Comments: Comments Off on 5 Critical Small Business Accounting Challenges to Avoid / By William Mahnic
Keeping accurate books is one of the most challenging factors of running a successful company. It is also one of the most critical. Making an accounting error can be incredibly damaging—even detrimental—to businesses. However, accounting mistakes are surprisingly commonplace. Sadly, keeping the books is not a skill you can just persevere through to ensure that you get it right. Here are the five most typical accounting mistakes that small businesses face and the ways that you can easily avoid them.
1. Not Hiring a Quality Accountant
You’ve probably heard someone say you cannot throw money at a problem to fix it. However, when it comes to your business’s accounting, you really can fix problems by allocating more resources to it. One of the most common accounting mistakes out there is that people simply do not invest enough funds into their accounting. This is the most frequent among growing businesses, who will outgrow their junior accountant and require a senior controller, but are hesitant to fork over the $70,000 if not more for their salary and so end up hiring someone for $40,000. Although the cheaper accountant will probably be efficient at processing the business’s accounts payable transactions, when it comes to the necessary expertise to maximize the company’s financials he or she is probably lacking, which can massively hold back the company from growing.
2. Not Keeping Track of Expense Receipts
Do you often have to scan through bank account statements to determine what a particular charge was for? Do you have a hard time determining if a certain expense was for office supplies or a client’s project? If this is the case, then it cannot only be extremely frustrating and time-consuming to straighten out, but you could also run into major trouble when tax season rolls around. If you cannot report your expenses accurately, your business may get hit with a painful penalty. A simple fix for this is to keep tabs on your expense receipts and keep them organized by dates.
3. Spending too Much on Tech Solutions
Fancy accounting software will not necessarily pay for itself. Often, a business will allocate too much money into new accounting software. However, only a tiny number of small businesses need the power of an enterprise accounting system. Before you pay too much for an accounting system, you do not really need, take the time to evaluate those tools that are created specifically for small businesses. These kinds of platforms focus on areas that matter most for small companies such as compliance, invoicing, cash flow, etc. and they will not weigh you down with additional functions that your business does not need yet.
4. Not Being on the Same Page as Your Accountant
Your CPA can be a huge help to your business since they have the training and skills to aid you in making critical business decisions that you face as a small business. For instance, when the right time is to hire another employee or make a major business purchase such as a new computer or upgraded software. However, often, creative business professionals are uncomfortable with accounting terminology or otherwise feel uneasy about communicating with their accountant or asking him or her questions.
5. Mixing Personal with Business Finances
Mixing your personal and business finance is never a good idea. However, many small business owners still have a single checking account for both types of finances. This creates an even bigger issue when they commingle all of their expenses on the company’s books. Did they purchase printer paper for home or office use? How did a video game purchase end up on the company credit card? To avoid any confusion its best to set clear boundaries between your personal and business finance. Besides causing confusion, mixing finances can also cause issues with the IRS, who has begun taking stricter stances on what accounts for a business expense.