5 COMMON SMALL BUSINESS ACCOUNTING MISTAKES TO AVOID
It is the small choices that can make a profound impact on your business. Poor oversight and inconsistent practices can cause business owners a big headache down the road. No one wants an IRS penalty or an audit and it makes sense for small business to have the right processes and people in place to handle their accounting needs. If you are a small business handling your own accounting needs, with minimal outsourcing, this message is for you. Avoid these practices to ensure the success and growth of your small business as it develops.
Be Aware of Common Small Business Mistakes
It is easy to get wrapped up in the daily management of your business and pick the most budget-friendly option to address your accounting needs. However, small business owners are not necessarily accountants and may not have put a process in place that enables their long-term financial stability. An accounting mistake can be fatal to your business. These suggestions will help you prevent a costly accounting mistakes.
1. Hire the best accountant for the job.
Dedicate the resources done to ensure that the job is done properly the first time. A common mistake is that small businesses under-invest in accounting, especially when it comes to hires. An expanding business needs more than their original junior finance person and that step up accords that new hire a jump in salary. Instead of attracting the senior controller that they may need with a competitive salary, they go with a cheaper option with less experience in their role. This choice can undermine the growth of an organization. Hire individuals with a thorough understanding of all of the key metrics that you will need for those critical business decisions.
2. Select professionals and avoid employing family.
If running a business is not stressful enough, add in family friction and problems addressing accountability when employing family members. When mistakes are made, it is easy to address them with an individual that is not part of the family. You have more options as an owner for redress and need not fear creating a problem within the family because you have fired your uncle. Your uncle or wife might seem a perfect and cheap accounting solution. This often occur for those just starting a new business with smaller budgets and receiving offers of help from friends and family. Keeping business relationships and family relationships separate help maintain the health of both.
3. Tech is not always the answer.
New accounting software is only as good as the end user’s current needs. An enterprise-level accounting system may not be necessary for small business needs and would be a superfluous expenditure for their bottom line. Businesses need to do their homework and find accounting tools designed for a business of their size. Such tools can focus on most meaningful areas for a small business, such as cash flow, compliance and invoicing.
4. Keep business and personal finances separate.
It becomes easy to pull out a business credit card and spend money on personal items when out and about. However, is the accountant supposed to review each single purchase and tediously separate them? Was the creamer for the office or the home? Will you even remember what is for home or business in a month or a year? Adding in personal expenses that cannot be written off with those business expenses can pose a red flag for the IRS. Establish a personal checking account and a business checking out in order to minimize the stress. When the IRS sees an inordinate amount of personal expenses come tax time, they will use that amount and apply that to the whole period being audited. Their computation on expected taxes will be based on this new amount. Small businesses can find themselves in a financial hole very quickly.
5. Focus on the best use of your time.
Accounting is a necessary but tedious part of your business. When your business demands it, hire the qualified staff you need to take over this end of the operations. It’s practical to strategically use your time on revenue-producing areas and allow others to handle the accounting.
Create in-house processes and hire individuals that can enable and not impede your business growth. Future success starts from the measures taken at day one.