5 Accounting Mistakes that Put Your Small Business at Risk

Accounting mistakes can put your small businesses at risk. Unfortunately, mistakes are all too common, especially for new or budding businesses.

We have the top 5 common accounting mistakes that places small businesses at risk and how to avoid them.

1.) Not Staying on Top of Receivables
Always keep track of your receivables. When you issue an invoice, a receivable is recorded—meaning that a customer owes you money. As soon as you receive payment from that customer, it should be applied against the invoice to mark it as paid. However, this is easier said than done.

If you want to lessen the work needed to be done in fixing your receivables and avoid the hassle during tax season, use a combination of cloud accounting software and accepting online payments. This process will automate your receivables process, helping you get paid faster.

2.) Not Keeping Expense Receipts
Most small business owners fail to save copies of business expense receipts. This can result in a series of tax, accounting, and cash flow issues. Not having receipts with the actual details of the purchase can result to serious errors in your tax report expenses and a high tax bill if you’re ever audited.

Save yourself from the hard work and keep all receipts of every business purchase. Here are a few tips to make this task less time-consuming:

• Use your business bank or credit card only in paying for business expenses

• Keep an envelope in your bag/car where you can put all your receipts

• Every month, go through the receipts stored in the envelope and file them to your tax folder or save digital copies in the cloud.

3.) No Records of Cash Expenses
It is essential for business owners to track all expenses related to running a small business so these costs can be deducted from total income at tax time and to have better grasp of overall profitability throughout the year. Generally, most of these expenses are not recorded and thus forgotten. This causes the business owner to overstate income for the year! Create a system wherein you can track all of these cash expenditures. Ask for a receipt from the vendor to enter into your accounting software or notify your accountant.

4.) Not Hiring a Professional to Handle Taxes
Many small business owners try to save money by doing their own taxes. Truth be told, not hiring a professional can cost you more down the road as compared to hiring one. There’s a risk that of not claiming all the deductions you qualify for or you underpay your tax bill thus, leading to penalties and other fees.

5.) Not Getting on the Same Page as Your Accountant
Communication is important between you and your small business accountant. If you can’t understand something that your accountant tells you, you should raise that immediately so you are on the same page with them. While jargons are inevitable, you want to have a deeper understanding of your accountant’s analysis as it is your business after all that he/she is taking care of.