When you make an accounting mistake, it can halt the growth of your small business and put you on shaky ground. Luckily, there are a lot of accounting tips floating around out there just waiting to be put to use.
In this roundup, you will find ten of the best tips out there to avoid common accounting mistakes. That way, you can avoid making businesses bloopers for yourself.
1. Pay Close Attention to Receivables
Getting paid is the most exciting part of running a business. What isn’t as much fun, however, is managing your receivables.
When an invoice is issued, you record a receivable, meaning that you log that a customer owes you money. By checking this listing you are able to easily see if a customer has an outstanding balance.
When the customer pays you, the amount should be applied to their invoice and it should be marked as paid. However, when you are trying to keep up with a lot of orders, this is easier said than done.
Customer deposits all too often are left to reconcile at a later date since there are never enough hours in the day. That means that when tax time comes around, you are left with a lot of customer deposits in your revenue account and a report of your receivables that don’t match.
The consequences here are that you waste hours updating your listing, you can overpay on your taxes and you will have high debts. That is why you need to make it a point to keep track of your transactions as they happen. Apply your customer’s payments monthly — it can save you tons of time and money in the long run.
2. Log Expense Receipts
Unfortunately, it is a common mistake for small business owners not to save copies of their expense reports. This can result in a wide range of tax, accounting and cash flow issues.
If you have ever looked at your bank statement and seen a charge for a hundred dollars and had no idea what it was, then you are familiar with the problems that come with keeping poor records.
One way you can solve this problem is by saving a receipt of every purchase that your business makes. It may seem like a lot of work but there are a few accounting tips to make it easier.
The first is to use one credit card to pay for all business expenses. Keep track of your receipts by having a designated location for them, such as a spot in your car or on your desk. Or, better yet, snap a picture of your receipt on your phone instantly! These tricks keep you organized so you can file for taxes on time.
3. Record Cash Expenses
When you are an entrepreneur it is crucial that you track all the expenses related to your business. That way these costs can be subtracted from the amount of your total income when it comes time to do taxes.
This will give you a more accurate sense of your overall profitability for the year. It is easy to look past expenses paid for in cash. Ask for a receipt from your vendor or log the expense immediately to ensure that it makes it on the books.
4. Hire a Professional to Handle Your Taxes
Many people try to save money by doing their taxes themselves. In reality, if you don’t hire a tax professional, not having their accounting tips can cost your business a lot of money down the road.
It is possible that you could miss a deduction that you qualify for or underpay your bill leading to penalties. If you spend the money for a professional, they know what they are doing and will use accounting tips to put you in the best financial situation.
They will be up-to-date on the ever-changing tax laws and can plan ahead for tax hikes that may be coming your way in the near future.
5. Get on the Same Wavelength
When you work with other professionals to manage your books, you can find the jargon they use confusing. It is important that you let them know if you don’t understand the terms they are using.
You are a small business owner, not a financial professional. You have no reason to be up-to-date on the latest technical terminology being used in the financial industry.
You need to see your accountant and tax professionals as part of your team. They should be watching your back and giving you accounting tips that you can bank on.
6. Understand Double-Entry Bookkeeping
Most businesses these days are using accounting software rather than physical books, but the accounting tips behind double-entry still apply. The basic idea is that whenever you make a purchase for your business, you record not only the expense but also what was gained from the transaction.
For example, if you bought a pair of shoes for ten dollars then you would write down negative ten dollars on your balance sheet. But under double-entry bookkeeping, you would also write plus ten for inventory gain.
Unless the money you spend has truly been lost, this style of bookkeeping will be the best way to represent where your money is going. That way you can make the best decisions for your business.
7. Chart Your Accounts
For the most well-rounded picture of your business, you need to have multiple accounts. Each key aspect of your business should have a space for logging its transactions and the balance of the account should be adjusted accordingly.
Some of the most important accounts to keep track of are:
- Account Receivable (money customers owe you)
- Accounts Payable (money you owe someone else)
- Sales (your revenue)
- Purchases (supplies)
- Payroll Expenses
- Owners’ Equity (The money you and other owners put into the business)
- Retained Earnings (your profits)
Those who are more detail oriented can go even further into splitting their accounts into sub-accounts to keep track of individual transactions or product purchases.
8. Keep Your Books Balanced
Knowing what it means to balance your books is one of the most important accounting tips for new business owners. Whatever happens with your business’ accounts, the books have to balance afterward.
Unfortunately, mistakes happen. You may have to comb through your accounts to make adjustments if any errors are made. That is why it is important to perform regular audits of your books. This should be done every accounting period, monthly or quarterly.
9. Prepare Financial Statements
In previous accounting tips, we have looked at the different kinds of financial statements a business prepares. Some examples of this are the balance sheets, income statements and cash statements of the business.
The information used on those statements comes from your accounts and reflects the assets and liabilities of your business.
On a regular basis, you should be drawing from the information on all your different accounts to create one primary financial statement. This is a snapshot of your business at this particular time and can be used to show the changes your company goes through over time.
If you were a publicly traded company, you would be required to produce financial statements on a quarterly or annual basis for your investors. Since you (probably) don’t have this requirement, it is up to you to decide how often this kind of report should be made for your business.
10. Take Advantage of Technology for Accounting Tips
In practice, trying to keep accurate accounts is a complex process. As your business grows, this process becomes even more stressful.
A single transaction you make can involve multiple entries into several of your different accounts. When there are hundreds of these kinds of transactions, it can be overwhelming to try to keep a record.
That is where the help of technology comes in. Accounting systems are much easier to use that recording every transaction your business makes into physical ledgers the way things used to be done.
If you decide to use software for your accounting needs, make sure you still keep a copy of all of your receipts, either physically or digitally. This way, you can go back and verify everything if you see any discrepancies when you go to balance your books.
Keeping Your Business Secure With Scale Factor
When you have made efforts to get your business’ books managed, you may look for the help of technology. That is where ScaleFactor comes in.
We combine software with the accounting tips of expert professionals to create reports of your monthly accounts and ensure that they are accurate and healthy. You will have a team of trusted experts in-house ready to meet your financial needs.
In addition, our powerful software can work with your existing Xero or Quickbooks account to automate your monthly reports and free you to focus on the success and expansion that you strive for with your small business.
When you are ready to hand off the chore of accounting and focus on the business you love, ScaleFactor is your financial headquarters. We have powerful software that can save you time and money to get started today.