Don't Make These Entrepreneur Accounting Mistakes!
Entrepreneurs generally have no problems when it comes to developing new ideas to get their business going. Unfortunately, studies show that about 90 percent of these start-ups fail within the first five years. As a small business, you may think you are safe from making big financial mistakes, but in fact, the smaller your business is, the more important your financials are to that success. We have put together a list of a few of the most common accounting mistakes entrepreneurs can make.
Mixing Business With Personal Finances
One of the most common mistakes is mixing personal and business funds together. The more mixing of the two, the harder it is to separate when it’s time to report income or file taxes. It is vital that you create separate accounts from the very start of your business and never cross that line. This is especially true when making cash purchases. Everything must flow through your business account so that you can achieve the greatest financial benefit. Maintain separate credit cards for business and personal and pay tax payments from your personal accounts when incurring a tax expense related to your personal expenses.
If you pay for business expenses out of personal funds and don’t reimburse yourself, you can be technically misreporting your personal income, and will overstate it when it’s tax time. Do not forget to write off business expenses you pay with personal funds. This is another example of the problems that can arise when you mix personal and business funds.
Declaring Revenue Before Final Delivery
Declaring your revenue as soon as you make a sale can be a dangerous practice to start. It can make your books look better at first, but it can backfire when you need to see your true profits. The problem with counting your revenue too early is that you overlook the expenses that go into the final delivery. Whether you are selling products or providing services, you should consider your expenses before you can determine your real profit.
Where Are Your Transactions?
Losing track of a single transaction can cost your business thousands of dollars. If you can not recall when exactly a deposit was made, if an invoice was created for goods or services rendered, or if the proper client was given a credit on their account, this can single-handedly end your business. Proper bookkeeping can prevent these transactions from slipping through the cracks. If you don’t have a good bookkeeping process in place, you need one. Develop a system where records are created as soon as a transaction is made.
Not Seeking Professional Help
All entrepreneurs need professional help. Just because we are skilled at our expertise doesn’t mean we are accountants or can properly manage the day-to-day tasks. Important aspects of the business that you have no interest or skills in should be outsourced. If you do not know what you’re doing and don’t have the time to learn, get a professional to help.
Overall, it is important to establish solid accounting guidelines from the start and always have checks and balances in place to ensure mistakes are caught quickly and corrected. Learn what you need to know. If you need a resource to get you on the right track, give us a call today if you need help getting started with a plan.