According to statistics, your business is more likely to fail than flourish. If you are in business or looking to get into entrepreneurship, the goal is obviously to build a profitable enterprise that will enjoy longevity.
Business accounting is one area of running a business that can significantly contribute to your business, success-or lack thereof.
By being cognizant of common accounting pitfalls and how to avoid them, you can significantly increase your odds of a long, lucrative entrepreneurial journey.
Here are some of the more common ones.
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1. Equating Profits With Cash Flow
Take a scenario where you bag a $100,000 deal, with an expected delivery date in three months. This project will take $30,000 to execute. Entrepreneurs in such a scenario are tempted to book a $70,000 profit before ever getting started on the job.
Big mistake.
Take the above scenario. If the project takes longer than expected or costs more than estimated, it could create a lot of problems for your business.
By spending more cash than anticipated, you risk leaving your business cash strapped. This would mean struggling to pay utilities, salaries, and even taking on more work.
By taking the time to understand the fundamentals of profit vs cash flow, you will be a step ahead in protecting your business from cash flow issues.
2. Not Differentiating Contractors From Employees
Whether a worker is contracted or is a permanent employee impacts your taxes significantly.
It affects how much taxes you should withhold, the types of taxes as well as additional overheads your business must pay.
Because the two forms of employment are different, the differences must be accounted for as well. Failure to do this can cause the IRS to flag your business. You need to understand the consequences of this or hire an accountant who can guide you.
3. Slacking on Bookkeeping
At times entrepreneurs fail to do proper bookkeeping, especially when they deem their company to be doing well.
From small payments to large payments from clients, it’s important to ensure all transactions are categorized and recorded.
This is important for companies of any size.
Doing so will give you a clear picture of your company’s financial health. It helps you make projections for the coming months and can be useful when you need to cost cut.
Some items tend to fall through the cracks, especially when traveling or when constrained by time. A cloud business accounting software allows online bookkeeping by allowing you to access and update your records anytime, anywhere, and anytime. You can even integrate it with an invoice processing solution, and automate the process even further.
Tools go a long way in supporting internal reporting, which ensures sound business accounting.
4. Attempting an Inclusive DIY
Understandably, you would not want to spend a dollar more than you should have to. And new entrepreneurs tend to want to handle their accounting themselves.
From errors in your books to missing out on tax deductibles, running your business accounting in-house can be disastrous.
If hiring an accountant on a full-time basis is not an option, a business accounting software can help you run your accounting. A cloud business accounting software works best as you can access your information from anywhere provided you have internet access.
5. Failure to Reconcile Bank Accounts With Books
It’s not uncommon to have some errors when recording transactions. This makes reconciling accounts critical.
Reconciling is checking that your account balance reflects correctly in your business bank account. When this is not done often, the two statements might fall out of sync, depending on how often errors are made.
Ensure to reconcile your accounts frequently. This ensures you track your business finances accurately.
Today, you can get good business accounting software that can help with reconciliation.
The good news is that cloud business accounting software is affordable and comes with different pricing plans to fit your needs.
6. Working With Ambiguous Budgets
Often, entrepreneurs will pick up a project without knowing how much it will cost them.
When you do this, you will sometimes spend more than intended or more than makes business sense.
One of the initial steps to take before commencing any project should be to create a budget.
This shows you what your potential ROI will be. It also acts as a gatekeeper in matters of finance. By consistently comparing project progress vis a vis your budget, you can track spending and take corrective measures when need be.
If you are using a cloud business accounting software, everyone on a project can access the budget and act accordingly. This is because online bookkeeping systems allow multiple users at a go.
7. Blurring Business and Personal Finances
First-time entrepreneurs also make the mistake of mixing business and personal finances.
These infractions might seem minor when your business is small but can pose significant issues once you begin to scale.
The best way to set up a business is by opening a business account. Among other benefits, this will make business accounting functions such as reconciliation and tax processing much easier to execute.
Streamline Your Processes with Business Accounting Software
Understandably, you might be unable to hire full-time accounting staff when starting.
An online bookkeeping software solves this problem perfectly. ZarMoney is a trusted business accounting software that helps entrepreneurs track their business finances.
Undoubtedly, a reputable online bookkeeping system is one way to streamline your accounts and take your business to great heights. Start a free trial now!
About Carson Derrow
