Accounting mistakes happen. That’s just the reality of it. However, for many small business owners and solopreneurs who just started their very first LLC, they simply don’t know any better. This can, unfortunately, lead to many headaches down the road.
Accounting and bookkeeping aren’t something you can just “wing” and think you’ll be okay in the long run. You need to make sure you get it right from the start so you don’t run into some major issues.
While you could do your accounting yourself, it may be in your best interest to hire a professional accountant who can handle it for you. The small expense could save you headaches in the future.
Let's go over five common accounting mistakes that small business owners make in order to help you steer clear and enjoy some smooth sailing.
1. Not Separating Business and Personal Accounts
One of the most common accounting mistakes for new business owners is not separating your business and personal bank accounts. While it seems like having just one may save you from managing multiple, you MUST separate them.
Combining accounts will cause you to rip your hair out when a question arises (and it will) on where money came from or went. And your bank isn’t going to like you very much if you’re constantly asking them for information or clarification on your statements because you didn’t separate everything.
Additionally, if you are ever being audited, the IRS is going to want to see your bank statements and backup paperwork. Trying to explain to them what comes from where is not going to make them happy (and that’s not something you want to experience as they’ll start digging into everything you do).
Go to your bank and tell them you would like to open up a business checking account. This will provide you the separation you need, along with checks specific to your business.
2. Trying to Figure Out Your Tax Return on Your Own
I don’t know about you, but I’m no tax expert. In fact, I’m far from it and absolutely hate filing my taxes. Not only that, but I simply don’t have time to break away from my day-to-day operations to do taxes. My time is much better spent growing my business, and you should be saying the same.
The IRS often changes deductions, what you can and can’t expense and many other factors each year. In order to stay on top of things, it’s going to take some time and effort on your part to do your due diligence and read up on all the various changes. Does that sound exciting? Probably not.
Here’s a personal experience from my own business. For fun, two years ago I had my CPA do my taxes while I, too, did them on my own. I wanted to compare if there were any differences between the two. My findings were extremely eye-opening.
Not only did he find deductions I never even knew about, but he saved me thousands on my taxes. If I were to do my taxes on my own, I would have essentially been ripping myself off. And that’s WITH the expense of having my CPA do my taxes for me. In a nutshell, allow a professional to do your taxes for you.
If you’d like some help with your taxes, Incfile can help you through our business accounting services. Take the guesswork out of your taxes and have them prepared by a qualified tax professional.
3. Not Keeping Your Receipts
We live in a digital world these days and seldom do we want added paperwork. However, in the case of business expenses and receipts, get used to it. Having a paper trail of your expenses can save you a lot of time down the road.
In business, not having receipts can open up a can of worms if the IRS decides you’re the lucky winner to be audited. They are going to want to see the receipt for an expense, know why you purchased it and know when and how it’s being used in your business.
Here’s what I do. When I expense something for the business, I either take the copy I was given or I print it out. I then put it in a bin I designate as my receipt bin.
Once I get my credit card statement, I take all of those receipts and check them against what my statement shows. I then staple all the receipts to that statement and file it in my folder named “Expenses.” It keeps everything nice and tidy and easy to pull from if I need to go back and reference something.
4. Not Using Software for Bookkeeping
Think you can get away with pen and paper or an Excel spreadsheet for bookkeeping? Think again.
Using something like QuickBooks can make your life a lot easier. You can enter expenses and payments. You can send invoices. You can view your business checking account balance. You can pay employees. The list goes on and on of the various capabilities.
There’s generally a downloadable version that can only be used on the device you downloaded it to, or you can get an online cloud-based version that you can use anywhere you have a connection to the internet, such as your smartphone.
Another great reason to use bookkeeping software is the ability to quickly and easily run reports. You can check your profit and loss (P&L) statement, check how you’re doing year-to-date (YTD) and many other useful reports.
Additionally, you can give access to your CPA, and they can pull whatever information they need throughout the year to be your extra set of eyes. Overall, bookkeeping software is extremely useful and important.
5. Not Backing Up Your Bookkeeping Software
Last on our list of accounting mistakes piggybacks off of #4. And that is not backing up your bookkeeping software.
Let’s say one day you click to open your software program and it crashes. Or even worse, your laptop/computer completely crashes and you lose everything. You’re in for a headache.
If you’re not using cloud-based software that backs things up for you, you need to have a backup. Consider backing up your bookkeeping software to an external hard drive. Or better yet, back it up to something like your Google Drive or Dropbox.
When it comes to avoiding these common accounting mistakes, preparation and getting help from an accountant will be your lifesavers. Letting a professional take the reins will free you up to focus on your strengths — growing your business to be as successful as it can be.
Matt Weik is the Founder/Owner of Weik Fitness, LLC and is a well-respected fitness expert/author with a global following. He’s a certified strength and conditioning specialist, personal trainer, and sports nutritionist. His work has been featured in over 85 fitness magazines and over 1,500 websites. You can contact Matt via www.weikfitness.com or on his social channels found on his website.