While keeping the books for your business is one of the most basic functions of running a business, it is by no means a simple task. As your business grows so do the accounting tasks you have to deal with on a daily basis. Hiring employees means keeping track of payroll, benefits, taxes, insurance payments, and other associated charges. More revenue means more taxes or finding more deductions. Growing your business means dealing with all of these issues and more. Having an accountant to handle these issues as a specialist becomes a must, whether full-time or part-time. But there are things you, as the business owner, should keep an eye on and make efforts to avoid. Let’s examine some common accounting mistakes to avoid!
Working Without a Budget is Like Walking A Tightrope With No Net
Failing to create a budget for business operations is a mistake that many businesses make. Flying by the seat of your pants can be exciting...too exciting, especially in business. If you never lay out your expected operations and cash flow, thinking about how and when you will spend revenue, preserving capital for purchases of materials, you will certainly wander into difficulty. Having written financial goals and laying out your cash flow is the way to start off correctly.
What Are Generally Accepted Accounting Principles (GAAP)?
Anybody can buy accounting software to use in their business. Many business owners are tempted to buy these programs and count on the software to establish procedures for how they keep their books. Without some knowledge of accounting, however, the software may lead the uninitiated into even more trouble. The accounting profession has developed a common set of procedures, standards, and principles that businesses must follow to keep their books in proper order to produce accurate and compliant financial statements. These generally accepted accounting principles (GAAP) should be the baseline for your accounting operations. You have to amend them to fit your business, however, so YOUR procedures or managing your books and finances should be written down and adhered to by our staff.
Recording Revenue and Expenses!
A problem common to many small businesses is reconciling revenue received against open invoices! This means you bill your client and when the money comes in you put it in the bank. You record the bank deposits and register the revenue. The mistake is failing to apply the payment to the open invoice/receivable! Failing to match revenue against invoice will create a problem as your books will be showing open invoices and accounts receivable that have already been paid. This both complicates collections, as you don’t know who has or hasn’t paid, and can damage client relations. Similarly, when you write a check it has to be recorded against accounts payable so that the payment is correctly coded on your Chart of Accounts and recorded in your Profit & Loss Statement. By recording these correctly, you will give yourself an accurate view of where your cash is going, where it is coming from, and how quickly it flows through your business.
Doing It Yourself
Business owners are cost conscious and try to do as much on their own as they are able. The complexity of accounting, and its importance in your business, dictates that you should leave these tasks to a professional accountant. You can hire an internal accountant or contract for external accounting from service companies such as CustomOne CFO & Controllers. By letting a skilled professional handle your accounting you will not only relieve your stress by knowing your books are correct, but you will have someone working with you to help track and analyze your business operations. It will also give YOU more time to run the business instead of doing bookkeeping. Hiring an accountant for your small business, whether a full-time accountant or a contract Des Moines CPA firm such as CustomOne CFO & Controllers, is something you can’t ignore.