Accounting is one of those tasks that grow with your business. The bigger your business grows, the larger and more complicated accounting tasks become. Which means accounting mistakes are more prone to happen. You shouldn’t take managing a company’s finances lightly.
Many small business owners choose to tackle their own accounting and small business bookkeeping tasks and while some are able to pull it off, many are making costly accounting mistakes they don’t even know they are making.
Here are four common accounting mistakes to avoid in your small business:
Mixing business and personal finances
While your business is still in its infant stage, it’s easy to use your personal bank account. Most new business owners use the same bank account and record keeping methods you’ve always used, without separating the two. However, this can be a costly mistake to small business owners. One of the first steps when starting a new business should be to open a new bank account. If you pay for business expenses out of pocket, keep your records for tax deductions and reimburse yourself. It’s the same idea as turning in receipts to your employer for a business expense. Try to keep your personal and business accounts as separate as possible.
Forgetting to record small transactions
Many small business owners don’t keep track of small expenses simply because they seem insignificant. Mailing a package, or purchasing file folders don’t seem like expenses you need to keep track of. However, it is essential that you track even the smallest of transactions, no matter how insignificant. Those small business-related purchases add up and after a while, you’ll rack up a decent amount of tax-deductible business expenses. If the IRS ever audits you, you’ll want to have records or each and every business expense. Not to mention, staying on top of the small transactions makes managing the larger business expenses that much easier.
Not setting a clear budget for each project
Failing to effectively budget even the smallest projects within your company can be a costly mistake. A project that isn’t properly budgeted can end up costing a company way more money than it should have. Simply because there is no clear plan going in. Set a budget for each project, convey that number to employees working on the project, and stick to it. Setting budgets for all projects keeps a business’ finances on track and cuts spending significantly.
Trying to manage all accounting in-house
When a business is first starting out, they have limited expenses which makes it easy to manage your own accounting. However, as your company grows, managing your own accounting could actually be costing your business money. While hiring an accountant will cost you more money each month, you’ll actually save money long-term. An accountant can help you free up your time and focus, find tax deductions you didn’t know about, and find errors that only an expert can spot. In fact, the IRS reported over $3 Billion in penalties and fees charged to business owners for mistakes in taxes and payroll in 2013.
To speak with an accountant about saving your small business time and money, and avoiding these costly mistakes, contact Vyde today.
FAQs about Accounting Mistakes:
Why is mixing business and personal finances a mistake?
Combining finances can lead to confusion, hinder tax deductions, and complicate financial tracking. Separate accounts streamline record-keeping.
Why should small transactions be recorded?
Small expenses accumulate and impact financial records. Proper documentation ensures accurate tax reporting and facilitates financial management.
Why is setting a clear budget for each project important?
Clear project budgets prevent overspending, enhance cost control, and promote financial discipline. They ensure efficient resource allocation and project management.
Is managing all accounting in-house advisable for growing businesses?
While manageable initially, in-house accounting may lead to costly errors as businesses expand. Professional accountants offer expertise, uncover deductions, and mitigate IRS penalties.
How can an accountant benefit small businesses?
Accountants provide financial expertise, uncover tax-saving opportunities, and identify errors that could result in IRS penalties. Contact Vyde for professional assistance and long-term financial stability.
