7 Accounting Mistakes You Could be Making as a Small Business Owner

Thanks to the improvements in the realm of DIY bookkeeping and accounting software, it is getting “easier” than ever for owners to handle their small business bookkeeping on their own. But is it really easier?

Handling the accounting on their own opens small business owners up to more errors due to their own limited knowledge of tax and bookkeeping. Here are 7 common mistakes we see small business owners making.

1. Assuming “Profit” means “Cash” –Just because you have several jobs that are going to lead to profit of $30,000 does not mean that you have $30,000 in revenue to spend. Sometimes, it takes months to fulfill projects and actually receive payment from customers. And that doesn’t take into consideration, if your job runs over the projected time frame or if there are additional costs associated.
2. Failing to Reconcile Books with Bank Account – Do you have an accounting software that you use? Do you go in and reconcile your Bank statement with the balance in your software? Or are you the type that just looks at the balance in your checking account and goes from there? It is very important for small businesses to reconcile their accounts monthly to ensure that they’re getting a clear financial picture of their business. You will be able to see expenses as well as profits more clearly.
3. Not Specifying “employee” or “contractor” –If you have employees, then payroll taxes need to be withheld from their checks as well as paid on their behalf by the company. If they are contractors none of those taxes have to be paid, but they have to have a 1099 at the end of the year. It is vital that this is properly tracked and accounted for to ensure your business accounts accuracy.
4. Not taking your Bookkeeping Seriously – Doing your books after a full day at your business, working on your books when you have five minutes to spare or have other things going on at once. All small business owners do it, but your bookkeeping is something that needs and deserves undivided time and attention.
5. Managing your Accounting In-House – this is a continuation of the mistake above. You do your books on your own and then you think you can also handle the taxes on your own. But this could actually be costing you more money. A CPA will be able to double check your bookkeeping (or do your bookkeeping for you) and find any errors, locate any additional tax deductions, and also free up your time to bring in more revenue to your business. With the right CPA, they will save your business more money than they charge in fees.
6. Forgetting your “cash” – As a business owner it’s tempting to pull some cash out of the drawer for small transactions. While there is nothing wrong with this, it is something that needs to be kept up with for bookkeeping. It helps you recognize actual profits and expenses if there is a ledger kept of cash taken and what it is used for.
7. Using your Personal Account for Business Purchases – This is another tempting habit, using your own personal debit card or cash for business expenses. While also not wrong, it is another thing that needs to be tracked in your business’s books to accurately gauge expenses. It becomes much easier to just use your business account rather than try to keep a running tally of every time you used your personal account and what it was for.

We at Watkins and Co would love to discuss your accounting and bookkeeping needs with you. Whether you need someone to review your books every month and file your taxes, or prefer monthly bookkeeping services combined with filing taxes on your behalf, we can help!  Call us at (601) 936-9288.