February 17 2017
Although it can be tempting to try to take on the accounting for your business, it's easy to make mistakes when you're juggling all the hats you wear as a business owner. While some of these errors are small and easily remedied, larger mistakes can cause serious issues for the health of your business. Here are some of the most common mistakes we see entrepreneurs make when they try to handle all of their accounting by themselves.
Not staying on top of your books
We're going to go out on a limb here and guess that bookkeeping is probably one of your least favorite tasks in your business. And we all know what happens when we don't like to do something -- we put it off and keep putting it off until we can't procrastinate any longer. The problem with putting off your bookkeeping is that it snowballs the longer you delay, and before you know it, you have to do months of reconciling to get up to date. Staying on top of your books means you'll catch errors faster, saving you what could amount to thousands of dollars over a year's time. Keep in mind that delays in bank feeds mean that what you see on the screen isn't always what's in your account, so those overdraft fees will add up as well. And by staying up to date with your bookkeeping, you'll sleep easier knowing that you're able to make an informed decision in the event of a financial emergency or last-minute purchase.
Not keeping receipts
Whether you keep them in a shoebox (not what we recommend) or digitize them, it's important to save every receipt, no matter how small the purchase. Without the receipts, you won't be able to claim vital deductions. And if you get audited, you'll need them as documentation.
Mistaking cash flow and profit
Many business owners confuse cash flow with profit, thinking they have more money than they do. Simply put, profit is generally recorded when a sale is made, while cash flow is recorded when the payment is actually received. The problem with confusing the two comes when you sell a product or service, and you think you have the profit right away. You have to consider that the client may not pay for the service at the time of sale. If you make financial decisions based solely on your profit, you may find yourself in a cash flow pinch. And nobody wants that to happen.
Not keeping up with receivables
Cash flow makes or breaks a small business. Without it, you can't make payroll or pay expenses. And the longer your invoices go unpaid, the more likely they are to remain outstanding. That's why it's so important to keep up on those outstanding invoices, no matter how uncomfortable it may be. Using a cloud-based accounting software to send and receive invoices can help you keep up on it. If you find you can't, outsourcing your bookkeeping will fix that issue. Your outsourced accountant will make your unpaid invoices a priority, resulting in your business getting paid faster. If you find you need immediate help, you can also consider invoice financing.
Not getting in the cloud
Does the idea of a fire or natural disaster at your business keep you up at night? It should. Losing all of your inventory and physical belongings at your business can be devastating. Add in losing all of your records, and the loss can cripple a business to the point where it never recovers. You don't have to lose sleep over this. By transitioning to a paperless business, you can rest assured that your physical records will be there no matter what may happen. For more on moving your business to the cloud, read our blog post here.
We also recommend getting a cloud-based accounting system. This will allow you to access your accounting from anywhere in the world.
Handling all of your accounting
You probably didn't start your business to sit in an office and do your bookkeeping, run payroll, and read profit and loss statements all day. You started your business because you had a passion. All the hours spent in your back office are hours you could spend growing your business. Hiring a professional to assist you in your bookkeeping and accounting means you'll be making decisions by looking forward and not backward.
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