As a business owner, you wear many hats and have a lot on your plate. With so much to consider, it's easy to make mistakes. But some mistakes can be much more costly than others, especially when they are accounting mistakes. Let's take a closer look at our top accounting mistakes to avoid.
Accounting Mistake to Avoid #1: Attempting to Do It Yourself
Managing your books takes an exceptional level of detail, organization, and time. Unfortunately, all three of these are at a premium for business owners. To effectively manage accounting for your business, you will need to record each transaction, digitize receipts for later reference, calculate your taxes, and much more. And when you attempt to do it yourself, too many of these tasks can be pushed to the “later” side of your desk. Hindered by a tight schedule, “later” inevitably never comes. Failing to have up-to-date books can wreak havoc on your business, causing issues like:
- Unpaid invoices that lead to poor relationships with vendors and suppliers
- Loss of profit because unpaid invoices go unnoticed.
- The epic crunch during tax season because your books aren't up to date.
While the DIY accounting method may have worked in the beginning, it's best to partner with an experienced accounting team for comprehensive accounting support. Simply put, outsourcing legal, IT, accounting, and other administrative tasks can increase profitability and reduce errors. Just make sure to use your newfound time strategically.
Accounting Mistake to Avoid #2: You Don't Have a Budget
It's imperative to create a budget for your business. The budget can serve as a litmus test on your business's operating results. And your budget isn't only important for avoiding overspending — it can be used to establish feasible, written financial objectives. When making a budget, it should always be grounded in reality. This doesn't mean that you can't use your budget to set reasonable financial goals, whether it's reducing operating expenses or increasing revenues.
Accounting Mistake to Avoid #3: Failing to Have Experienced Professional for Taxes
Although you may be able to do your own personal taxes, the process is exponentially more difficult and complicated for small businesses. As such, it's of the highest importance to hire an experienced professional for tax planning and filing solutions. These professionals are well versed in the latest tax laws and can help optimize your return for the benefit of your business.
Simply put, any fees associated with hiring a tax professional can be easily recouped in the form of reduced tax liability or even returns. When you hire a tax professional, you can rest easier knowing:
- The tax planning pro is up to date on the latest tax codes that do change frequently.
- You can completely forgo the angst, anxiety, and complications associated with tax season
- You can reduce your chances of being audited
- You will receive year-round tax planning advice
- Mistakes made on previous returns can be amended
Accounting Mistake to Avoid #4: Relying Too Heavily on Software
Today, there are several software options available for your business to use. So much so, it can be easy to think you can get by on software alone. Although there are many tasks that can be handled by software, there are several more that can't. Specifically, you should rely on the expertise of an accountant for the following:
Your accountant can go beyond the numbers to determine what's really going on. An experienced CPA will uncover the why behind the problem and help you address it.
Although the software can send out invoices, it can never provide you with financial advice and business consulting based on your industry. CPAs, on the other hand, understand your market and business. And they are able to go well beyond the standard and provide tailored advice and guidance.
Complex Tax Filing Solutions
Most software is designed to only handle simple returns. However, complex filings for businesses and personal situations require the experienced hand of an accountant.
Accounting Mistake to Avoid #5: Omission Errors
Whether you are collecting customer payments or purchasing inventory, you constantly handle transactions. As such, the continual inflow and outflow of cash can result in certain activities slipping through the cracks. And anytime you do not record transactions, they are called omission errors.
It's important to understand that unrecorded business costs can create massive problems. On the other hand, economic records that are inaccurate can create complications when it comes to filing taxes and measuring profitability. Because of this, it's important to carefully record every business transaction — even those that may seem insignificant.
Consider organizing smaller expenses into proper accounts and keeping the receipts. For example, petty cash represents smaller amounts of cash you keep on hand. And most organizations use petty cash to pay for inexpensive items. If you do purchase something with petty cash, ensure you document it in your accounting ledger. Failure to do so can lead to future accounting mistakes.
Contact MB Group for Expert, Affordable Accounting Solution
When it comes to accounting for your business, you essentially have two options: hire an in-house accountant or outsource your accounting. For most business owners, choosing to outsource their accounting is the more effective and cost-efficient option.
As a leading team of accountants and CPAs, the MB Group offers a full suite of tax planning, financial reporting, accounting, and consulting solutions that can be tailored to the needs of your business.
Contact us today to learn more.