Being in business for yourself is always a trial and error experience. Some things work and work well, other things are a disaster. You learn, right? One thing you should never mess around with, however, is the business’s finances. It’s important to have a plan and detailed records accounting for every cent of your capital. It’s easy to make serious financial mistakes when you run your own business, especially when you are first starting out. Having an accountant you can rely on and get guidance from is important, but not everyone does. Here are the five most common mistakes made in small business accounting.
1. To small of a budget
This refers to how much you dedicate to your actual accounting services. While you may have a meagre budget all around, you should portion off as much as you can for a professional accountant in your budget. The right accountant will be worth their weight in gold and help you succeed in the business world. Don’t cheap out – not here.
2. Technology isn’t always the answer
There is always new software coming out, especially for accounting firms. Don’t think that paying out the wazoo for the top of the line tax software will solve all your problems. You can often more than get back with the middle of the road programs, and if you outsource to an accounting firm, rather than hire someone in-house, they’ll have all kinds of software of their own.
3. Separate business from family
Yes, your father may be an accountant, or your nephew may be finishing a degree in finance, but that doesn’t mean you should hire them. Personal relationships can really mess up professional ones, and oftentimes that personal relationship affects the way an employee conducts themselves. They may not think a deadline applies to them, or they may take liberties with your direction that other employees wouldn’t. In order to maintain that professional line, you should always hire a professional who will put the needs of your business and their job first.
4. Separate your finances
Many small business owners begin operations as a sole-proprietor, largely because their business income is not yet significant, or they are trying to take advantage of tax benefits/credits. It is, however, important to separate your business and personal finances (en.wikipedia.org/wiki/Personal_finance), especially once things get rolling. Incorporating your business and setting up separate accounts make it much easier to keep an accurate record of the business’s finances, expenses etc. This is particularly true when you make ambiguous business purchases such as office staples (coffee, tea, milk, sugar, pens, pencils etc.). If all your purchases are made from the same account, it can be very difficult to determine work purchases from personal ones. There is nothing worse than messy accounts and record books.
5. Trying to do it all
You can’t! Don’t even try. Businesses require so much work on so many levels, from various fields – many of which have trained experts, which you, likely, are not. If you aren’t a trained accountant, you shouldn’t be handling your business books, payroll, or financial planning strategies. Even if you are an accountant, this can be a full-time job, when will you find the time to actually run or grow your business? It’s good to know when to accept help and when to ask for it. Have someone on hand who can do payroll, balance your accounts, manage marketing, and source new materials – whatever it is you may need. As your business expands, so will its needs in terms of personnel and expertise. You might as well find people you like and can work with in the early stages, who will be willing and able to stay-on as the company grows.
Being in business for yourself is exciting and terrifying. It comes with a lot of responsibility, questions and concerns. Part of this is managing the accounting side of your business, and once you get a professional in there (either on staff or outsourced) you will find a great deal of stress is lifted off your shoulders, and you will be able to focus on the areas of the business that need you the most. Don’t put your business in jeopardy by making some of the most common small business accounting errors. Get ahead of the curve.
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