1.) Managing Your Company’s Accounting Yourself
As a small business owner, you have a tendency to want and have to do everything for your business on you own. Nowadays there are a vast number of accounting software programs available to help you with your books. This software may be able to help you keep your books organized, but the software will not be able to notify you if anything was added incorrectly or point out any other accounting errors made. Not only could completing your own accounting cost you more to have a professional fix the errors, but entering in and organizing all of your business’s financial records can be an incredibly time-consuming task. Your time is valuable and your capital is crucial to keeping your business going, hiring a professional accounting firm will help you manage your accounting and bookkeeping, as well as provide tax strategies to save money along with expert advice for growth.
2.) Placing Debit & Credit Balances in the Wrong Accounts
In bookkeeping, credits should be placed in the liabilities account and debits are placed in the asset accounts. It is quite easy to become confused on whether an entry will be recorded as a debit or as a credit, which could then lead to your entries being posted in the wrong account, misclassification of accounts, and duplicating adjusting entries. These errors can cause both accounts to be incorrect which can lead to a number of financial troubles, such as taking more money out of the business than you actually have because your assets balance was incorrect. To keep these bookkeeping glitches from occurring, it is best to hire a bookkeeper and an accountant to oversee the bookkeeper or the more cost-effective solution of outsourcing an accounting firm who will have both bookkeepers and accountants working on your financial records.
3.) Misclassifying Expenses
With the assistance of accounting systems, you can quickly and easily post entries, however, when the information is being entered the system can just as easily pick up the wrong account or have the wrong description. Classifying expenses in the wrong account or description could mean that it will show up incorrectly in the system which can also lead to messy financial records and tax returns causing you to have to pay an accountant to fix. The best way to avoid these mistakes is to have someone knowledgeable in classifying expenses scan over your work to ensure that everything was recorded in the proper accountant and/or description.
4.) Procrastinating Your Books
In being a small business owner, you are constantly needed somewhere in your business. But sometimes, you are pulled in so many different directions, which results in certain areas becoming ignored. Many times, the area being ignored is your company’s bookkeeping work, leading to errors more likely being made as when you finally do get to the bookkeeping, as you may not remember every transaction made and before your books are being updated you are making financial decisions for your business blindly. Procrastinating your bookkeeping work can also lead to not being able to come up with a proper budget, as creating a budget relies on your business having accurate and timely information.
Another important reason to not push bookkeeping to the side is your business’s payables and receivables are ignored. If you are not making records in your books than you may not notice when customers are not making their payments to your business and the more outstanding your receivables are, the more difficult it is to collect. Your accounts payable can also be affected in that payments to vendors or banks may not be made on time, which can hurt your business’s credit and make it harder to apply for credit cards and loans. Finally, if you hold off on completing your company’s bookkeeping it can cause your business to incur tax penalties. Without updated and completed financial records and bookkeeping, tax returns cannot be completed and IRS penalties can be costly to your business. For example, if your business is an LLC you can be fined up to $195 per month, multiplied by the number of managing members for the late return. If your company is a C-Corp, your late penalties can be 5 percent of the unpaid taxes per month. For all entities, late payments on quarterly estimated tax and sales tax payments can come with heftier fines.
To keep your business from taking on these hefty costs and penalties, make sure your bookkeeping is done regularly and accurately. This of course can be easier said than done, as running a small business can be time consuming and let’s face it, you didn’t start your business to be a bookkeeper or accountant. The best solution would be to hire an accounting firm you will not only handle your bookkeeping arcuately and regularly, but will also supply tax returns and business advice.
5.) Having Non-Professional Do Your Accounting
It is nice to have family and friends being able to help you out with your business, but if your family or friend is not a professional bookkeeper or accountant, they can be doing more harm to your business than good. Without having the proper knowledge in bookkeeping or accounting, they can end up making a multitude of errors that can result in penalties and fees from the IRS, as well as the hefty cost of having to hire an accountant to go back and fix all of the errors. Even if you decide to hire an employee or hand the job over to a current employee, if they are not a bookkeeper or accountant they can cause just as much harm as having a family member or friend working on your accounting. The best solution is to hire a professional to manage your business’s accounting. Outsourcing a full-service accounting firm, Like Chamberland Business Accounting, means you receive both a bookkeeper and accountant for one affordable price rather than having to pay for two separate professionals.
Avoiding any of these poor accounting practices to your business can help ensure it remains operating efficiently and has the keys to lasting success. The best solution to avoiding all of the problems is to outsource your accounting work to a experienced accounting firm to ensure accuracy and timeliness, while eliminating your stress and worry over your business’s finances.