4 Accounting Mistakes Entrepreneurs Should Avoid
Accounting is a vital part of every business endeavor, and it is not as easy as you might think. While most businesses believe that they will be saving money by doing their own accounting, it is not a good idea. Note that accounting mistakes can cost your company a fortune.
So, you don’t want to mess with the digits since it can obstruct your business’s growth. And due to a lack of proper accounting procedures, small businesses are bound to make many accounting mistakes.
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The following are some common mistakes that you must avoid:
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Handling everything on your own
Most passionate business owners have a habit of handling everything independently, thinking that it will save them money. However, handling numerous tasks simultaneously is not the best idea as it can do more harm than good to your business. It is, therefore, better to delegate the tasks to professionals.
Having an expert handle your accounting will save you energy and time so that you can shift your focus to something that matters more. Besides, if you are an excellent accountant, why don’t you delegate other tasks in the organization and focus on bookkeeping alone?
On the other hand, you must hire a criminal lawyer to help your business stay on top of all legal charges. Consult with an experienced attorney regarding all legal matters.
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Mixing business finances with personal finances
Combining your finances is an easy way to mess up your business finances. So, the best thing to do when opening a business is to open a separate business account. Also, it will be best to run all the expenses and income through the business bank account.
In addition, you might have to pay for some business expenses from your pocket, and in that case, it is good to have a record. Remember that those are tax deductions, and you cannot deduct if there is no record.
Consult with an experienced CPA regarding your personal and business tax returns.
Not backing up company data
Backing up your file must be your priority because every transaction your business makes is crucial. There have been many instances where equipment is stolen, computers crash, and you could lose your company data.
So, by backing up your files, you will ensure that your data is safe and accessible for many years. While many online services can help you backup your files, it is advisable to use cloud accounting software to create a backup via its cloud services automatically.
Not differentiating cash flow and proceeds
These two terms are completely different. A business’s proceeds are what remains from the revenue after you deduct all the company’s expenses. While on the other hand, its cash flow is that money that flows in and out of the company from investments, fiscal activities, and other business operations.
It is very easy to go bankrupt. Let’s say you purchase an item for a hundred dollars and sell it for two hundred. You will have made a profit of a hundred dollars, but the customer cannot complete the payment on time. What about the bill you have to pay at that time?
You don’t have the cash despite the profit you just made. Therefore, it is vital to keep track of what you are selling and spending. Review your financial statements every month to clearly understand the precise business situation.
Final Thoughts
As an entrepreneur, there are many things you have to do other than accounting. You launched your business to make a living. So accounting is typically a part of it and should be perceived as an investment. It is crucial to understand the importance of accounting and avoid these mistakes.
Good luck!
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/