Common Accounting Errors That Can Cause Big Problems
There are some industries where a high rate of error is unacceptable and accounting definitely falls in this category. Poor accounting practices can devastate you financially and lead to poor business practices. Some of this can be avoided by outsourcing to an accountant, but not everyone has the financial means to do this.
Financial mistakes can stunt the growth of the business and damage your company’s reputation. In order to help you avoid these outcomes, listed below are six accounting errors business owners commonly make and how these can harm you:
#1. Failing to keep careful records
It is always a mistake to fall behind on your financial records. If you have an “I’ll do it later” mentality then you are setting yourself up for problems down the road. If your records are not up-to-date then you may not be aware that you are losing money and you put yourself at risk to be audited by the IRS.
Schedule a time to routinely review invoices and reconcile your bank statements. This will ensure that you don’t suddenly realize months have gone by without you updating the books.
#2. Mixing business and personal finances
Business owners need to keep their personal and business expenses completely separate. By keeping them separate you have an accurate record of what expenses are business-related and what were personal expenses. It is a good idea to keep separate accounts so you can mentally view your business and personal expenses as separate as well.
#3. Getting rid of receipts
Receipts can offer answers to any mistakes or gaps in your accounting. Not to mention, saving your receipts can add up to many deductions come tax season! Plus, if the IRS does decide to audit you then you will be able to prove the numbers you submitted on your financial statements.
#4. Outsourcing your accounting to the wrong person
You should never attempt to cut corners when you are hiring an accountant. By hiring an unqualified friend or family member you may feel like you are saving money but the truth is, you will likely end up costing yourself more money in the forms of penalties or an audit.
#5. Thinking technology is the answer to everything
There are many fantastic bookkeeping applications on the market right now but they are useless if you aren’t using them correctly. You can’t fix a problem by simply throwing money at it and not all technology will be relevant to your specific business.
In order to be successful, you must utilize good planning, research, and strategy in addition to the right technology so you can ensure you are not just adding to your financial mistakes.
#6. Not knowing when to outsource
Many business owners do not understand when it is time for them to let go and hand over the reigns to someone else. If accounting is not your area of expertise then that is okay. By freeing up this task to someone else, you will have more time to focus on what you do best.