Accounting in your small business doesn't just involve keeping the books for tax purposes, but it is an important device for saving money and identifying waste, fraud, and theft. That's why It's so important for business owners to hire professional accountants instead of trying to do the books themselves or delegating the work to inexperienced staff members. Even successful companies can easily go broke because of accounting mistakes that result in unpaid taxes, fraud, theft or embezzlement.
Most Common Accounting Mistakes
Accounting mistakes include making basic math errors, entering data incorrectly and failing to document expenses and income. The following accounting mistakes are among the most common for small businesses.
In accounting, organization is critical. That means keeping receipts for all expenditures, using business credit or debit cards for expenses, keeping the books up-to-date, noting petty cash expenses accurately on the day that they’re incurred and not mixing personal and business finances.
As a busy business owner, it is easy to pick up supplies while doing your personal shopping and errands. However, it is important to get separate receipts and use your state resale ID number for any supplies that will be resold. Although expenses under $75 don't generally require a receipt, it's always a good idea to get one. When you can show receipts for all your expenses, auditors are less likely to challenge them.
Getting Behind on Paperwork
Small business owners tasked with wearing many hats frequently put off doing the books until the end of the week or the end of the month--or later. This is a risky strategy because it's easy to get behind on financial statements, reports that must be filed, sales tax payments, bill payments and even billing customers for money that they owe you.
Delayed billing can result in bounced checks, increased debts that will never get paid and mistakes in invoices that will be difficult to prove at a later date. You could be liable for penalties and interest for filing reports late or lose out on big financial opportunities because the books aren’t current. If you have to struggle or rush to catch up on your books, it's easier to make costly mistakes.
The IRS often discovers math errors and corrects them for you. However, you can't count on any agency catching your math errors. There are also other kinds of math errors that agencies can’t identify, and these can have a significant cumulative effect on your finances. These kinds of errors include entering figures in the wrong place, failing to round off figures properly or making errors that are not in your favor.
Hiring the Wrong Office Staff
If the person in charge of doing your books doesn't know what he or she is doing, you're the one who pays for any errors. No employee, relative or casual acquaintance will worry about your books as much as you or a professional accounting company will. If such a person makes a mistake, he or she isn't invested like an accountant with a fiduciary responsibility or a person with a financial interest in the business. The other risk of hiring someone who is not a professional is that the person could easily engage in criminal activity like embezzlement or theft.
Being Unwilling to Delegate
Small business owners are often unwilling to delegate bookkeeping to experienced accounting professionals, yet business growth depends upon the critical ability to let other professionals handle anything outside of your business core competencies.
Simply, you must be willing to let other people do their jobs while you do yours. Few business owners are qualified in accounting, tax strategies, managing business assets and setting up business entities to capitalize on the advantages of certain business structures. You need expert advice and an experienced accountant to maximize income and minimize taxes.
Poor communications between you and your bookkeeper can result in serious mistakes in your records, filing reports, and result in everything from impossible to reconcile statements to inaccurate key financial data. It's easy to forget that you paid someone a bonus in cash or gave a cash discount unless you write the information down and convey it to your bookkeeper.
Technology doesn't prevent accounting mistakes because of the “garbage in, garbage out” business adage. The person who enters the accounting numbers in software and technology applications needs to transfer them correctly and enter them in the right place at the right time. The bookkeeper needs to know when to file paperwork and how to interpret facts about assets, taxes and other matters.
If you want to get the most profits from your sales and expenses, you need to utilize an experienced accountant or bookkeeping service to handle your books the right way to help you avoid errors, find savings on taxes and uncover other business opportunities based on your financial picture. At the very least, ensure proper procedures and processes are in place to keep communication open and productive.