There are an estimated 28 million small business started in the US alone and many more hundreds of millions the world over. While this is great from an economic perspective, it means that small business are finding more and more competition each year.
To complicate the issue, a lot of small business owners are trying to do everything by themselves. This is logical, when considering that they want to cut back on expenses as much as possible. However, what it means is that they are juggling so many different tasks that they’re liable to make quite a few mistakes.
Some of the worst mistakes are related to accounting. To help small business owners avoid that possibility, we’ll look at some of the biggest accounting mistakes that can hurt their small businesses—and how to avoid them.
Not splitting up your business and personal finances
This is probably the biggest mistake to make, especially for new entrepreneurs. With a minimal (although growing) amount of money being made by their business, they see no point to separate their finances.
This means that they use personal funds to buy business things, and vice versa. What this means is that they are not going to be able to track their expenses accurately, which is especially horrible when they’ll have to do their taxes.
This will not end well. In order to avoid this, you’ll need to get a separate bank account, with a card, and use the business account strictly for business and the personal account strictly for personal things.
No regular receipts
I mentioned tax time above for one very important reason: it can cause a lot of pain if you don’t file your taxes correctly. You really don’t want the tax man knocking at your door.
One of the other problems with young small businesses is that they don’t have a good method for saving receipts. If you don’t save your receipts, you won’t be able to accurately report your expenditures. And this is how you set yourself up for a tax audit.
To avoid that, get a system together for storing your receipts. It can be as old school as a shoebox under your bed, or by using software to take pictures or scan your receipts.
Either way, you need to get in the habit of saving your receipts.
Not going after late payments
Cash flow is the king when it comes to the survivability of any small business. A lot of small business simply go out of business because, although their profits on paper looked good, they didn’t have enough cash flow to keep them afloat in the mean time.
Don’t let that happen to you. One way is for you to go after all your clients who are late on their invoice payments. This will help your invoices get paid on time. These payments are obligations that they must fulfill, and there’s no reason for you to be lenient with them.
Be vigilant. It is your money, after all.
These tips will help you to avoid the biggest accounting mistakes that, if not taken care of in time, can really work to sink your business.