There are many things that you need to worry about as a small business owner. Not only are you evaluating cash flow to make sure that you have enough money for payroll, but you are also carrying the burden of overseeing employee management, budgeting, business development, customer service, marketing, and more. As the owner of a small business, it is important for you to know that seemingly small mistakes can lead to serious financial damage in the future.
Accounting and bookkeeping are the key functions of any business. Most small businesses face challenges in accounting and bookkeeping procedures. Without the right financial tracking, your small business is in danger of failing. Although most entrepreneurs don’t realize how serious bookkeeping mistakes can be, accounting mistakes are posing as a major threat to the growth of your business in the long run. This is why many small businesses around the United States are turning to outsourced bookkeeping services.
Why Does Bookkeeping Matter?
Why does it matter if you have a good accountant for small business to help with your business efforts? Without the books, you have no numbers and without the numbers, you have no point of reference; you can’t even complete basic tasks such as submitting tax returns.
Having a bookkeeper stay current with these transactions ensures that the money continues to flow in and out of your business as needed. Not only will you have the money moving through to support business efforts and profits, but you will also account for every dollar that is spent or received.
As a small business owner, you can use the information when you are making big financial decisions that impact the future of your company. If you are putting together anything that will affect the organization of your business, then you need to be sure that you are staying ahead of these details. Then, you can lean on the financial reports knowing that the numbers are accurate.
It is important to note that many entrepreneurs don’t feel in the know about accounting to produce their own books. That is perfectly ok, and essentially why many small businesses turn to the experts and use outsourced bookkeeping services.
Biggest Bookkeeping Mistakes Small Business Owners Make
1. Not using accounting software
Choosing the correct software is among the biggest accounting challenges that small businesses can face. An important and challenging step in business is to choose the proper software per your business needs. Below we have highlighted some features your accounting software should include:
- Inventory management
- Sales tracking
- Contacts management and contact history tracking
- Account to accept credit card payments
- Generating invoices
- Financial statements, cash flow statements and balance sheet
- Budget planning
- Taxation matters
Accounting software can be quite costly. It is essential to determine your business needs and finances. You don’t want to waste money on purchasing costly software with highly- advanced features your small business does not need. If purchasing accounting software is too large of an upfront cost for your business, you will have the option of installments or monthly payments. Additionally, outsourced bookkeeping services can help choose and install the software for your business.
2. Financials are not produced monthly
Many small business owners and entrepreneurs believe that it is okay to produce financials on a quarterly or bi-annual basis. However, monthly financials show investors that you are closely monitoring your business.
It can lead to a negative balance if expenses are made but no income statement is updated. Invoices to be paid by the company may go unnoticed and it can put a bad reputation on a company. It can end terms with the suppliers. Business growth is halted or significantly reduced. Additionally, your business will have up to date accurate financials which will assist in making better business decisions.
3. Not tracking labor
Have a system to track labor is crucial to good business. Every minute costs you money. When you have staff that signs in early or signs out late, those minutes add up in a year. You also want to be prepared should you have to do your own labor audit. You need numbers and you can’t get them if you don’t track them.
4. Starting new projects and ideas without a clear budget
Starting a new project without a clear budget is a slippery slope for entrepreneurs. What happens if you exceed your budget and run short of money for other business operations? You don’t want to have to quit in the middle of your project or take out loans from other investors. It is essential to plan ahead before making big business decisions, and having an exact budget to start and complete projects.
5. Covering small expenses out of pocket without recording
Paying for business expenses out of your own pocket will eventually make your company look stronger in income than it actually is. It is extremely important to record everything so that you have a true picture of where your company stands financially.
Having receipts is one thing. Having the correct supporting information is another. In many cases, a receipt alone does not constitute proving a business expense. Every expense has to be reasonable and must be for business. If you have receipts for taxis, meals or entertainment (to name a few), you must indicate on the backs of the receipt details like the client you are meeting, the times and the reason for the meeting. Should you be audited, you can prove that that taxi ride and that dinner was indeed a business expense.
Are There Problems with Your Financial Records?
Jotting down a transaction on a piece of scrap paper isn’t good enough for your financial tracking. Instead of “getting by” with unproven systems, right now is the perfect time to implement an effective accounting and bookkeeping program. This step will help you overcome some of these common mistakes that happen when an inexperienced person handles bookkeeping for a company:
- Lack of consistency where transactions are recorded
- Hand-written accounting, instead of using a computer system
- Only using manual calculations
- Overlooking small transactions
- Missing tax payments and paperwork
- Lack of communication with a bookkeeper or accountant
- Organizational problems causing lost invoices and paperwork
- Falling behind on data entry
- Failing to complete regular audits and checks
- Hiring an inexperienced person to do the bookkeeping
- Final Thoughts
In the end, good bookkeeping will be the difference between a successful business and an unsuccessful business, especially in terms of longevity. From choosing a proper accounting software to managing accounting tasks correctly as well as keeping them up to date are among the biggest accounting challenges that small businesses face. Since small businesses face the largest accounting challenges, we highly suggest turning to outsourced bookkeeping services for help.
Don’s Stress Over DIY Accounting
There is no reason why you should be handling the stress of managing the accounting for your company. As the business owner, you have enough to worry about business development, employee management, and more. Let Limitless Investment & Capital’s outsourced bookkeeping services oversee the financial tracking for your company, freeing up your time to focus on other activities that will help your company grow. Let’s start a conversation today!