As a business owner it is important to be involved in your business. From the day to day operations, customer service, strategic planning, etc… But many business owners have trouble understanding the debit/credit side of accounting. Failure to understand the complexities of accounting can cause financial mistakes, stunt growth, decrease your bottom line, strain a relationship with a customer or supplier, or worse attract the attention of the IRS.
So here are 5 mistakes often made to help you avoid these mistakes:
Falling Behind on Entries and Reconciliation: As a business owner, time is always a factor. You are stretched out everywhere and sometimes have to chose what will be put on hold. With office work sometimes not a favorite of owners, accounting often gets pushed off. I have taken over the books from some owners and they have not done entries in months. By doing this, some have lost valuable receipts which are needed for the business. Another problem is that financials are not up date which can cause a challenge to make accurate financial decisions.
Not Utilizing Business Reports as Tools: Most business owners just do accounting to fulfill state and federal tax regulations or to know how much is in the bank. But accounting can create many reports to help track the true health of a business. Accounts receivable, payable aging reports, profit and loss statements, etc… These reports can show you where issues are in your business, including who owes you overdue money, whom you owe, and cash flow issues.
Mixing personal and Business Finances: One of the most common accounting mistakes business owners make is to mix their business and personal finances. Keep these separate and distinct to provide more accurate records of what was really used for business and what was actually personal use. While the IRS can understand the periodic meal on the account, they would not understand a 3 meals a day coming out of the business account.
Making Entry Mistakes: In a rush to get the books done after a long day, math mistakes can happen quite easily even when using an automated system. Another entry error could be entering data in wrong accounts. By doing this you are decreasing one account and increasing another creating inaccurate data to make decisions off of.
Relying That Expensive Technology is the Answer: Having the right software can simplify the accounting task but is not the solution. Throwing money around thinking that having the latest greatest software will replace a bookkeeper or accountant is not always the answer. You need to understand the software to get the most out of it. Sometime when it comes to utilizing the software, simper is better.
You likely started a company with a great idea or solution that had nothing to do with accounting and many other tasks. That idea or solution is where you should focus. If your accounting is overwhelming, you need to know when to let go and let someone else handle the accounting tasks. Learning when to use the tools or professionals to help in the areas you struggle with can be one of the biggest issues for business owners.
If you need help implementing a proper accounting system, contact us at : email@example.com with the subject line Accounting Help!