When you’re juggling the operations of a small business, each task takes its turn at being the number one priority. As you check an item off your to-do list—order supplies, take inventory, create an advertisement, etc.—you’re that much closer to small business success. Your list, however, doesn’t seem to get any shorter.
Many small business owners who do their own accounting and small business bookkeeping find that those tasks seem to hang out at the bottom of the list and never really get done. Unfortunately (and fortunately in some regard) accounting is an ongoing task that is never complete.
Here are three of the most common accounting mistakes small business owners make and ways to avoid them and keep your finances on track.
1. Not keeping close track of money coming in. It’s always great to get paid, but often times, the money goes out as quickly as it comes in. This is especially true for businesses who are just getting established. Keeping track of which invoices have been paid seems to be one of those things that is continually pushed to the bottom of the list with the thinking, “I’ll remember who paid me and mark it off later.” When this happens and tax season approaches, you’re left with a big long list of receivables and you’re not sure who paid what and when.
The solution: There is no easy answer to this. However, there are a few ways you can make keeping track of your receivables a little easier. One is to set aside time each day to account for money coming in. That sounds fairly elementary, but you’ll be surprised at how much more accurate your records will be if you have ten or twenty minutes each day to update.
Another way to keep better track of money coming in is to accept online payments, that way the internet does the tracking for you. Programs such as PayPal are easy to set up and maintain, and they crunch the numbers for you. If you are a running a larger, more established business, you may want to invest the money in updating your website to include a payment feature that is unique to your company.
2. Not keeping track of expenses—no matter how small! On the flip side of keeping track of money coming in, you’ve got to manage your money going out. Since there are often a lot more little expenses than there are payments coming in, this is perhaps the most difficult aspect of accounting to stay disciplined on, both in business and in personal finances. It’s easy to think that $20 here and $40 there isn’t much in the big picture of your business, but those small expenses can really add up and surprise you each month. Keeping track of your small business expenses will save you a lot of headache come tax season and also help you gain a better understanding of your profitability.
The solution(s): Keep your receipts! If you don’t have a record of what you spent, how will you ever know what the mysterious $50 charge is to your bank account? Even if you don’t take the time to sit down and record every receipt as you make your purchase, keep ahold of them so you know which expense is which later on. Create a separate envelope in your car to put business receipts so that they are all together in one place when you’re ready to update your records.
Keep a separate card and bank account for your small business. No matter how small your business, this is never a bad idea. Don’t charge business expenses on your personal credit card, and vice versa. If nothing else, it keeps things simpler throughout the year and at the end of the year when gathering all of your financial information.
3. Not hiring a professional. If your business is small and money is tight, hiring one more person to do something for you that you think you can do yourself just doesn’t seem logical. The truth of the matter is, if you’re not an accountant, you probably need an accountant. While you will have another bill to pay, you’ll also save yourself a lot of stress and a lot of money down the road. You need to make sure you are taking advantage of all the deductions you can, staying up to date on ever-changing tax laws, and make certain you are bringing in more than you are sending out.
The solution: Hire an accountant. If you absolutely cannot afford one more monthly bill, at least hire an accountant to do your taxes for you rather than trying to do them yourself. Vyde offers a low, flat monthly fee to clients that include tax preparation and doesn’t increase as you go. Vyde is able to handle the accounting for many small businesses for as low as $50 per month. (We know we’re kind of biased on this one, but hey, we also know how quickly things can get out of hand.)