5 COMMON ACCOUNTING MISTAKES THAT COST BUSINESSES BIG MONEY
Small accounting mistakes can cost your business big time, limiting growth and causing serious setbacks. Here are 5 common accounting mistakes that you can avoid by simply being in the know.
1. Counting Profits As Cash Flow
In order to operate a business you have to make investments and purchase product, supplies, etc., but beware you are not buying product faster than profits can catch up. Otherwise, you could find yourself in a lot of debt.
It’s important to know how much money you are bringing in vs. how much money you are spending on product development. If you are making money on paper but constantly have no money left over at the end of each month it might come down to miscalculations in expenses vs. earnings.
Hire our certified CPAs to keep track of profits, expenses and losses, providing you with a clear picture of where your business stands at all times. It’s also important to carefully look over financial plans before embarking on an expansion to ensure your business will make back its investment within a reasonable time.
2. Throwing Away Receipts
We live in a digital world but paper trails still hold power when it comes to deducting expenses or making up for any mistakes or gaps in accounting records. All purchase records for small and big purchases should be saved and accounted for. If you ever need to prove purchases to the IRS it’s going to be hard to do so if you don’t have any record of it. Without the receipts to prove certain transactions the IRS will consider it an invalid dedication, charging you back tax and penalties.
Even if you don’t pay with cash you should still keep all receipts. Just because you use a card or check doesn’t mean you will have any record of what that charge was for.
Instead of hoarding piles of paper receipts for the rest of forever, there are online programs that will digitize receipts and save a copy so that you reduce clutter and increase ease of finding what you want. Let us help you keep track of all valid expenses in order to earn the tax credits that you deserve without hassle.
3. Mixing Up Business & Personal Expenses
Using business accounts to pay for non-business related expenses complicates things and raises red flags with the IRS. It never looks good if you are using company money to fund your personal life just as much, if not more, than you are investing back into the company. Not to mention, it complicates the numbers making it difficult to determine if you are breaking even, losing money or in the green.
Keep separate credit cards and bank accounts for business and personal use. This makes it much easier to keep track of all profits, expenses and losses for your business. It will also simplify things when it comes to doing your taxes.
4. Not Checking Invoices & Vendor Statements
Is someone in charge of checking over invoices and vendor statements to ensure everything matches up? One of the biggest ways employees steal from employers is by making up phony invoices that appear legit, but only at surface level. All that it takes is a little digging to ensure all invoices add up to the real deal.
Keep careful tabs on all charges that go through the company. There are software programs available that make it more difficult for employees to create new vendors or get away with creating phony invoices.
5. Not Staying On Top Of Receivables
Playing bill collector is never a fun gig but it’s necessary in order to stay on top of company finances and keep your business financially thriving. Oftentimes businesses bill out invoices and then don’t keep track of when they are paid, and sometimes even if they are paid.
With so many invoices going out all of the time, it’s hard to keep track of what’s what. Unless someone is assigned to the task it’s easy for invoices to become long overdue or underpaid. Accounting software can help automatically keep track of what is paid and when. Many of these same programs will send out reminders for late payments and offer clients a platform to pay online.
(Related Topic: 5 Small Business Accounting Mistakes)
We Help You Avoid These Mistakes And Many More
DGK takes pride in helping small businesses keep track of finances to avoid IRS penalties, fraud, and other common issues that often arise from accounting mistakes. At the same time we can help your company find more opportunities for growth by creating concise reports packed with valuable insight.