Accounting isn't the most exciting part of running a business, but it's among the most important. Accounting errors can be extremely costly, so avoid the following mistakes to help keep your business in good financial shape.
1. Mixing Business and Personal Finances
It's generally not a good idea to mix your business and personal finances. Set up separate checking and savings accounts for both personal and business use so your books don't get mixed up and you don't end up spending company money on personal items. Use business accounts only to pay for business expenses. The same goes for credit cards and lines of credit.
2. Thinking You Can DIY
While it may save you money to try and handle accounting on your own, it's well worth paying to leave it to an expert who will take good care of your books. As a business owner, you have plenty of other roles to play. Don't risk making mistakes or falling behind. Leave accounting duties to a professional, either in-house or as an outside contractor.
3. Going Paperless
While going paperless certainly has benefits, it can hurt you in the accounting department. It's important to keep backups to avoid issues.As SCORE says, "When it comes to audits, a paperless office can actually be a major liability, especially in the event of technical problems. Taxing authorities like the IRS want to see a paper trail that includes clearly visible documentation and a well-organized system of paper backups. Apps that save your receipts can make day-to-day operations easier, but it’s still important to keep a backup of your financials for at least seven years."*
4. Not Saving Receipts
Make sure you save all receipts for business-related purchases. Not only will they be useful for tax deductions, but you might also need to present them if you are audited. They can also help you keep track of your spending and serve as reminders of how much you paid for certain goods or services in case you want to shop around for alternatives.
5. Not Managing Cash Flow Well
Stay on top of cash flow. Do everything you can to get paid as quickly as possible. Follow up on late payments in a timely fashion, and give customers/clients plenty of payment options. Digital payments can help speed things up. Charge late fees, and always monitor and forecast cash flow so you're not caught off guard. Poor cash flow management has been the reason for many businesses closing. Don't let that happen to your business.
6. Not Being Realistic About Expenses and/or Revenue
Try not to overestimate or underestimate how much you'll be paying or selling. When setting up a business plan or budget, build in some leeway in case sales are not as high as you hope they’ll be, or expenses turn out to be more than your predictions.“New business owners can make accounting mistakes due to a lack of experience or knowledge," says Marquet Media's Kristin Kimberly Marquet at Small Business Trends.** "The most common mistake is underestimating their monthly expenses and overestimating their monthly revenue. This leads to underinvesting in the business and, eventually, bankruptcy.
7. Not Taking Advantage of Tech
Use technology to help you stay on top of finances, including cash flow. If you aren't outsourcing your accounting, at least use a high-quality accounting software solution. Advancements in AI are coming into play in the accounting department. Explore options, do some research, and talk with other business owners about the types of tech and software they're using.8. Using Poor Communication
Poor communication can hurt any part of your business, but that is especially true for accounting. Make sure you're providing your accountant or head of accounting with all relevant information so that they can avoid making mistakes or miscalculations. This is critical for tax purposes, but also for the health of your business.
9. Not Keeping an Emergency Fund
Maintain an emergency fund so that you don't find yourself in financial trouble if unexpected things happen. Set up a business savings account specifically for emergencies to give your business some financial padding in uncertain times. The aforementioned credit cards or lines of credit can also be helpful.
Accounting matters probably aren't on your mind all the time as you run day-to-day operations. Be responsible in how you handle them, and consider letting a professional do the work for you so you can focus your attention on running the business.
* https://www.score.org/resource/article/top-10-bookkeeping-mistakes-small-businesses
** https://smallbiztrends.com/2022/07/accounting-mistakes-new-business-owners-make.html
