5 small business accounting mistakes
Most small business owners understand that effective financial management is key to their success. But lack of knowledge and time can result in accounting mistakes that can derail future growth.
Protect your business and reduce your stress by avoiding these five costly accounting errors.
1. Mixing personal and professional finances
From day one, small business owners should have a separate bank account for business incomes and expenses.
It’s also crucial to designate a business-only credit card. Come tax time, separate statements will make submitting claimable expenses quick and easy, while reducing the risk of a painful audit.
2. Letting accounts receivable slide
It’s frighteningly easy to lose track of which customers have paid you and which clients are late. Implement a strict policy and schedule for tracking accounts receivable and pursuing unpaid invoices.
- Ask customers to pay at the point of purchase or no more than 30 days later
- Contact clients to confirm they have received your invoice and to agree on a payment date
- Follow up immediately when payment dates are missed
- Keep accurate, up-to-date records of each client’s payment history
Investing in a cloud-based accounting solution can make this a breeze by automating your monthly invoicing – and contacting late payers with a reminder email.
3. Not accurately tracking expenses
Tired of chasing down missing receipts and struggling to justify claims come tax time? Use technology to help manage your expenses. There are a variety of apps and tools available at low or no cost, they often can generate expense reports that can sync with your accounting software. Many banks also offer management tools within their online banking systems.
4. Neglecting to strategize for long-term growth
Effective accounting means managing day-to-day finances while making provisions for future growth. Software and cloud-based solutions offer easy ways to track your financials, but they also generate reports and provide analytic tools small business owners can use for future forecasting.
Familiarize yourself with the reports your software can generate to track long-term trends, identify and lower risk, and discover new ways to increase profitability. Talk to your accountant about which reports and metrics are most important for your particular business and how to utilize them.
5. Final tip: Don’t go it alone
Small business owners are rarely trained accountants. Don’t try to manage your company’s finances all by yourself.
Collaborate with a trusted professional, invest in quality IT solutions, and spend some time familiarizing yourself with relevant tools and trends.