There's often more to accounting than you'd think. Especially as your business grows, managing transactions, expenses, and more can become increasingly complex—which often means there's room for error. If you're still handling a lot of your business's books, it's not uncommon to make some of these common mistakes.
During the flow of day-to-day business, errors of omission, like failing to record transactions can happen. Sometimes you might make a purchase for the business or fail to record that an invoice was paid. At first they might seem like small oversights, but they can cause a bigger ripple effect on your business than you might realize.
These unrecorded transactions can throw off your books, which can cause you to lose your pulse on what money your business actually has. Failing to have your books in order can perpetuate further issues with your ability to properly measure the success and profitability of your growing business. Additionally, having books that aren't correct due to not properly recording transactions can even affect your taxes. Without an accurate record of your business expenses, you may be missing some that you could claim on your annual tax return. Missing these transactions could mean that you end up missing out on possible deductions.
When you began your business there was little distinction from your personal life and your professional life, and that might still be the case. You might use your personal money to pay for a business expense or maybe take money from the business to pay for a personal expense. At first it can seem like there is little harm in blurring the line between these two, but ultimately it can have some serious consequences.
Failing to separate your business transactions from your personal ones can end up causing quite a bit of disorganization, leading to missing transactions and messy books. By not having your business expenses separate, it will be incredibly difficult to oversee how much money is really being spent to run your business.
Mixing business and personal transactions could also run you into trouble legally as well, should the situation ever arise. This could open you up to personal legal issues should someone ever sue your business.
When you as the business owner, you have the ability to take an owner's draw to pay yourself without committing to a regular paycheck or salary. It should be noted that it's important to be mindful of how this needs to be recorded, as it must not be recorded as an expense.
It is not meant to be recorded as an expense because it isn't meant to appear on a company's income statement. An owner draw is taken from an owner's equity account and gives the owner the ability to withdraw profits or funds they've contributed to the business. There's a specific way owner draws are supposed to be taken and just writing them off as an expense can cause tax headaches further down the line both on the business and personal sides of things.
In addition to other personal expenses, personal tax payments should also not be included as a business expense. When it comes to your personal tax payments, these should be paid with your own personal money, not the business's.
The larger your business grows, the more opportunities there are for errors to occur. Right now it may seem like wrangling the accounting on your own might be saving your business money. However, by continuing to manage the accounting for your growing business, you could potentially open yourself and your business up to issues you might not anticipate and wind up costing you or your business money in the long run.
By working with professionals like us, we can anticipate and avoid any issues and you can rest easily knowing that your accounting is being done properly. As your business grows, it's important that you have time to focus on new things and work on your business more and more, rather than in your business. Working with experts can also help you to expand and grow your business, so be sure to reach out to the team at the MB Group today to get started.
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