Oftentimes, entrepreneurs and small business owners do not learn the right way to manage their accounting until they hire a new employee or business partner. This is often because those who use an accounting system every day often forget how confusing it can be for those just starting out says Aron Govil.
That’s why we’ve put together this list of 10 mistakes new small business owners often make with their accounting systems.
To avoid these mistakes, try to get out ahead of them by becoming familiar with the following common problems before you begin. Otherwise, you may find yourself in a situation where your business’s financial information is inaccurate or incomplete, which can cause some big problems down the road.
1) Incorrectly tracking income and expenses
A lot of entrepreneurs forget that expense reports are essential to documenting all of their expenditures. This can be especially difficult for those who use cash for most of their purchases. While it’s easy enough to jot down an expense on your smartphone when you make it, it isn’t always possible or practical. This means double-checking how you’re recording your income and expenses is even more important.
2) Keeping track of small business purchases as personal expenses
Another common mistake that small business owners make is failing to distinguish between what’s business expenditure and what’s a personal one says Aron Govil. For example, if you use your car for both work and pleasure, it can be easy to forget which gas fills were necessary for work and which ones weren’t. Similarly, if you do not keep separate checking accounts (one for your business and one for your personal life), or if you don’t read through each statement carefully every month, then you could end up with an inaccurate picture of how much money goes where.
3) Lack of automation
Because numerous tasks such as bill-paying and accounting can be performed solely online, some small business owners strip these processes down to the bare minimum after they get started. For example, they may use a simple spreadsheet to track their income and expenses rather than leveraging an online service that creates them automatically.
4) Creating an incomplete record of your business’s transactions
Although it may seem like a good idea to track only the bare minimum of your business’s financial information, trying to do so can be very counterproductive. For example, failing to keep track of tax payments during the year means you could end up owing thousands more than expected when tax season rolls around. Similarly, not keeping close tabs on your company’s bank accounts might force you to pay fees for services that were never used or take out loans that shouldn’t have been necessary.
5) Keeping too many records
After starting their small businesses, some entrepreneurs make the mistake of keeping every record they come across-even if it isn’t directly related to their operations. For instance, they might store invoices for suppliers who don’t do business with their customers.
As a result, this type of unnecessary clutter can make it challenging to find the records you actually need when you need them explains Aron Govil. From an administrative standpoint, trying to organize all these documents will only create more work for yourself and your team.
6) Failing to outsource or automate labor-intensive efforts
Even if your small business makes just $10,000 in annual revenue, chances are good that you probably spend some time doing things unrelated to selling goods or services (at least on occasion). Because it’s often difficult to focus on sales goals when other responsibilities take up so much of your time, entrepreneurs should look into ways they can cut down on extraneous tasks.
7) Not understanding how taxes work
With something as complicated as taxation laws, many small business owners fail to plan accordingly. Because they simply don’t understand what their responsibilities are when it comes to filing reports with the IRS. Whether your business provides services or sells goods should how you file your taxes (as an employer or an independent contractor, for example) but even if you’re unsure of the finer points of taxation, it makes sense to seek out help from a qualified accountant. After all, not knowing how taxes work can end up costing you more in penalties. And fees than you would have saved by hiring someone else to do your taxes says Aron Govil.
8) Not properly protecting sensitive information
When was the last time you changed your passwords? Do employees on your team know what happens if they click on a phishing email? Even amidst increasingly stringent security measures. Many small businesses are guilty of putting their customers’ data at risk. Because they don’t take basic precautions with their online accounts. Using data encryption software is one way to ensure. That consumers feel safe giving their credit card information to your company. But many entrepreneurs forget that hackers can still access their sensitive documents. If they aren’t stored behind a firewall.
9) Not understanding the importance of website SEO
Your website might have loads of great content. But if no one knows it exists, what good will it does you? As an entrepreneur, you might be so busy with sales and other day-to-day activities. That you don’t take the time to learn how search engine optimization works. While this is understandable (again, there are only 24 hours in a day). Not knowing how to find potential customers online could make it challenging for your business to thrive.
10) Failing to automate processes
If your company offers products or services that don’t change much over time. There’s no reason why you should be wasting your own or one of your employees’ time. Who could be using that extra time to boost productivity? On the same menial tasks every month says Aron Govil. Whether you hire an outside party to handle these activities for you or learn how to outsource online yourself. Automating processes can save entrepreneurs a lot of hassle in the long run.
The most important thing is not to get overwhelmed. Take it slow, one step at a time.