Small business owners must wear a lot of different hats, as they are often heavily involved in nearly all aspects of a company’s operations. However, not all business owners have the background and expertise to handle everything—especially when it comes to accounting and bookkeeping.
The following are five of the most common small business mistakes related to finances, and how you can avoid them:
1) Getting behind in your record keeping
Business owners must be diligent with keeping up to date with their books. It’s easy to get distracted with other elements of running a business, but you could find yourself with some significant problems if you start shirking your bookkeeping duties.
Make entries in your books and reconcile your checking statements, credit card statements and other types of accounts as needed, rather than trying to play catch-up on a monthly or quarterly basis. Otherwise, you run the risk of spending money you do not have or missing key invoices.
2. Not understanding or using accounting software
If you are going to pay for accounting software, you should take the time to learn how to properly use it. This software can make the jobs of business owners significantly easier, as long as they actually understand the functionality of the system. If you fail to set up or use accounting software correctly, you’re likely to encounter problems like inaccurate records, unused reporting functions and incomplete information, leading to harmful business decisions.
3. Mixing personal and business finances
One of the very first steps you should take when you decide to start a business is to open a separate bank account specifically for your company. This makes it much easier to keep accurate records of what you are truly spending for your business. Not only does this make your record keeping easier, but it can also help you prevent the Internal Revenue Service from performing an audit.
4. Not holding on to receipts
Whether you keep receipts in their paper or digital form, it is important that you hold on to them in a safe location. These receipts give you a record of your spending, can help you obtain tax deductions and provide proof to the IRS on the validity of your financial statements and records.
5. Only planning for the short term
There are so many day-to-day concerns and stresses associated with running a business that it can be easy to lose sight of your long-term goals. To maintain a truly healthy financial outlook, you must be able to forecast the future growth of your company and pinpoint potential financial risks before they even come up. Also consider the various opportunities for growth your company might have, any operational concerns you might be able to predict and your need to add more staff in the future.
By avoiding these types of mistakes, you can set your business up for much more sustainable long-term success. Consult a skilled financial consultant to learn more about what you should be doing from an accounting and bookkeeping perspective.