Accounting mistakes that are too easy to make
As a small business owner, accounting might not be your expertise. Luckily there are many great accounting systems available with tools to help with a whole range of accounting needs. Nevertheless, it is still all too easy to make accounting mistakes. You may find yourself among the many small business owners having to pay to correct a mistake you could have avoided if you’d known what mistakes to look for in the first place. By avoiding these common accounting mistakes, you can save your company time and money:
Mixing up expenses
If your small business is using a good accounting system, expenses can be entered quickly and easily; however, it’s easy to accidentally enter an expense under the wrong account or description, to completely forget to enter an expense in the first place, or worse yet, mix in personal expenses. Misclassifying expenses not only prevents you from having an accurate record of your business’s finances, but also can cause a costly problem if they aren’t found and fixed prior to creating your financial and tax reports.
Avoid misclassified expenses by checking over your statements on a regular bases. Whether it be quarterly or monthly, going over your expenses periodically will give you an opportunity to double check that everything was classified correctly and prevent you from having to trudge through an entire year’s worth of financial data to locate a misclassification error.
Throwing away receipts
Using an accounting system and having nice easy-to-read digital statement of all our expenses is by far the most convenient way to keep track of your finances. You might be tempted to not keep your receipts organized or even toss them after your expenses are entered into your system. Unfortunately, if your company gets audited, you’ll find yourself in a bit of hot water with the IRS if you don’t have all the receipts to backup your accounting records.
The IRS can audit your business for up to six years after taxes are filed if they suspect there is a substantial error, but this doesn’t necessarily mean you need become a hoarder. While many documents need to be kept for six years, others can be disposed of annually, such as ATM receipts and deposit slips if they have all been reconciled with your bank statement. Consult a financial professional if you are not sure what documents to keep or for how long.
Not Backing Up Your Records
Disasters happen. Computers crash. Equipment get’s stolen. Pipes burst. There are a plethora of disasters and accidents that can destroy your records. Much like you investing in insurance to protect against the worst, be prepared for the unexpected by backing up your accounting records on a regular bases. Schedule a routine backup of all your financial data often and keep your backups in separate location to help ensure access to your data in the future. Online services that store your financial data in an encrypted format are also a good option.
Doing It All Yourself
As an entrepreneur, accounting might not be your wheelhouse, which is OK. But if you have a habit of trying to manage everything on your own, you could be making little accounting mistakes without knowing it. From setting up an accounting system, to tax planning, the cost and time savings you realize from avoiding accounting mistake in the first place often out weigh the cost of bringing on help.