Small Business Accounting – Three Costly Mistakes to Avoid
Small Business Accounting
Small business owners have a lot on their plates, especially those starting a new business. Time is limited and does not allow you to become an expert in all the areas required for running a business. Here are a couple of common mistakes that we see all the time with small business accounting. Correcting them will help you be more productive and profitable in your business.
- Mismanaging Receipts
Maintaining your receipts are challenging for everyone, and the IRS requires that you have proof of business expenditures. Periodically, we come across people who feel that keeping the credit card statements are enough. Unfortunately, they are not enough. You will want to create a process to keep all of your receipts in one place so they don’t get lost.
Receipts printed on thermal paper (picture gas station receipts and others) will fade away within a year or two. The bad news is that the IRS could audit you for several years back if they want to. Correct this by scanning them or taking a clear picture of them using your smartphone.
Some accounting systems and/or document management applications allow you to upload the receipt and attach it to the transaction in your accounting system. This is a great solution, and if you’re interested in this, please ask us about it.
- Ignoring the accounting reports
There are golden nuggets in your accounting reports, but some business owners don’t make the time to review them, or are uncertain about how to understand them. Your accountant can help you interpret the reports and find the gold nuggets that can help you take action toward profitability.
Some things you can do with your reports include:
Identifying your highest selling services and/or products
Projecting cash flow so you are not caught short at payroll time
Understanding your top customers or your demographic of top customers
Evaluating your business development or marketing spend
Pointing out trends compared to prior years, budget, or seasonality effects
Checking on profit margins per product or service to make sure they are priced correctly
Managing your aging receivables or speeding up the collection process
Measuring your employee profitability
And so much more
Being proactive within your small business accounting will help you target opportunities in your business that you can act on, as well as spot and correct problems long before they manifest into trouble.
- Mixing business and pleasure
Within your bank accounts and on your credit cards, mixing business and pleasure is to be avoided when at all possible. All businesses should have a separate bank account, and all business transactions should go through that account. It takes your accountant much longer to correctly book a business deposit that was deposited into a personal account.
Taking out a separate credit card and putting all your business transactions on it will save your bookkeeper a lot of time, and you money. The credit card doesn’t even have to be a business credit card. It can just be a personal credit card that’s solely used for business. If you have employees making credit card charges, sometimes a separate card for them helps you control fraud.
The hardest area in which to separate business from pleasure is any cash transactions. Be sure your accountant knows about all these. The accountant can either set up a petty cash account or a reimbursement process so that you can get credit for cash expenditures that are for your small business.
At CPA Tampa we can help with all these of these common Small Business Accounting mistakes, and much more. For a FREE consultation please give us a call at (727) 587-0376.