Most Common Accounting Mistakes
Running a business can be quite the stressful job, but thanks to new technology and the development of accounting software – accounting and bookkeeping has been made a lot easier than it traditionally was. Despite this, it is still common, and typically human, to make mistakes every now and then. Accounting mistakes may result in misrepresenting your company’s financial health and potentially slow the process of growth. In this article, we will present you with the most common mistakes made by small- to medium sized businesses, so you can avoid making these yourself.
One of the main mistakes that business owners make when starting out, is not sticking to a budget, or worse – not making one at all. By creating a small budget, you can better plan what expenses you can afford and, thus, make better purchasing decisions. Its function is similar to that of a shopping-list: if you do not bring one to the store on the day of shopping, you end up buying stuff you did not really need. If there is no budget in the first place, you will not be able know when you are overspending, quickly leading to a recipe for disaster. A budget keeps you disciplined.
Save receipts and record each purchase
Applying a budget to your business is crucial, but what would a budget be worth unless you record your transactions? To answer this question for you; it would not be worth much. Therefore, it becomes evident that recording every single transaction made for the company is key. Failing to document your business’ expenses could potentially lead to the company losing out on valuable tax deductions – so, record everything, no matter how small. Another useful tip is to have all your receipts uploaded on the cloud, making sure you are in a good position in case you lose any documentation.
Have a separate business bank-account
If you have not already, make sure that you have separate bank accounts for your business and for personal use. Mixing your personal and business’ accounts can quickly become quite confusing, maybe leading to a mixing of funds. Mixing your funds may possibly lead to filing your taxes incorrectly and cause issues with the IRS. These issues are quite common and only require some additional documentation and form-filling to solve. Furthermore, separating your bank accounts’ is also a great way to stop yourself from spending money put aside to make your business grow, enabling factors of success for a business.
Difference between Contractor and Employee
Hiring staff for your business is often a necessary part of forming a growing business and it is therefore important to understand the difference between the two options you have. When looking to hire staff, think about whether you need assistance for a short- or long period of time. If short, you should often look to hire a contractor. Contractors are businesses themselves – they invoice you for the number of hours spent on a job, and do not require to be payed super contributions, tax, or any benefits.
On the other hand, you have employees. If you are looking to fill a role that is needed for a longer period, then a casual-, part-time or full-time employee is what you are looking for. This usually comes with extra responsibilities; however, it can also benefit your business. Choosing a right employee can help you by getting another perspective on your business, and it is rarely the case that two brains are weaker than one.
To make sure that you keep track of all the important elements of accounting, such as invoices and receipts, the assistance of an accounting software, like Xero, can often be quite useful. If you are a busy business-owner, as most are, it can become easy to neglect keeping records of each invoice sent to a customer. This can potentially lead to issues when tax return time arrives, seeing as you have a pile of deposits in your revenue account and a balance sheet that does not actually balance. By providing you with in-depth and comprehensive financial reports, accounting software enables better decision-making and by automating otherwise manual processes, you have more time to focus on profit-generating tasks.
Not hiring a bookkeeper or hiring a bad one
For most small-business owners, not hiring a bookkeeper can be a costly mistake, in terms of capital and time (sometimes both). Despite being an extra expense, it frequently takes out a lot of time out of your day that could rather be used to grow your business, or to have a break from your otherwise hectic day – improving your mental health (its importance is often overlooked). It is also important to note that the price paid for a bookkeeper is deductible during tax times. With that said, there are other benefits to having a bookkeeper, such as having someone on your team that knows the ins and outs of accounting. You will also have access to all the documentation, in a well-structured and organised manner, with the opportunity to get relevant and helpful advice in how you can manage your cash flow better.
All in all, it is clear that the development of technology, such as the cloud and accounting software, has made the lives of business’ owners around the world a lot simpler. Even with these tools to help you out, there are still pitfalls along the way. We hope that mentioning some of them in this article will better help you better avoid these mistakes and the consequences that usually follow. If you still feel like this might be too overwhelming for you and would rather play it safe and hire a professional bookkeeper, we in Link Books are here to help you. Our team consists of trustworthy and qualified bookkeepers that will help you with all of your accounting needs, in and around Brisbane. Contact us today and let us talk about how we can help.