Accounting is a necessary task of all business owners. It’s also something that many don’t particularly enjoy doing. Whether you have taken on accounting tasks yourself, hired a staff accountant, or outsourced the work, it’s important to be aware of common mistakes that could hurt your bottom line. If financial mismanagement goes on for too long, it could even cause you to lose your business. We at Palmetto Payroll want to ensure that none of our small business clients are forced into closure because of avoidable accounting mistakes.
Relying on Manual Entries Instead of Using Accounting Software
Entering financial transactions by hand always comes with the chance of making errors, even when using a calculator. There’s always the possibility of transposing numbers or making a typographical error. It can also be time-consuming. One of the best ways to add more time to your day and reduce the likelihood of making costly mistakes that could impact your business growth is to invest in accounting software. Online programs are typically easy to use and inexpensive as well. Some of the features available with accounting software include:
- Accept credit card payments online
- Balance sheets
- Budget forecasting
- Cash flow forecasting
- Financial statements
- Invoice generation
- Managing contacts
- Tracking sales
Once you decide on an accounting software program, make sure you invest time in learning to use its features and teach any employee with access to financial data to do the same. After all, purchasing the software and then not taking full advantage of it isn’t much better than using a manual entry system.
Inaccurate Depreciation of Assets
You can no longer claim depreciation of any business asset that you sell or dispose of during the year. Some business owners learn that the hard way when they receive a notice that the Internal Revenue Service (IRS) has adjusted their return. It’s also important to avoid listing depreciation for any asset that you own but no longer use. However, you can claim a credit for any fixed asset necessary to operate your business no matter how small it is.
Not Producing Financial Reports on a Monthly Basis
Preparing balance sheets, budgets, and cash flow statements is a lot of work. For this reason, some business owners only invest time into this task a few times a year. If you’re hoping to attract investors, however, it’s essential to publish monthly financial statements. It’s equally important for you to gauge the financial health of your business to ensure it remains on an upward growth trajectory.
Failing to Record All Transactions
It can be tempting to toss receipts in your desk and deal with them later, especially with small purchases. Unfortunately, this can be a disaster at tax time and make your business more vulnerable to an audit. The benefit of using accounting software is that some programs have a scanning feature that allow you to create an immediate digital copy of your receipt. That way everything is ready for you when you need to access your expenses to file a tax return.
Perhaps your company’s accounting practices could use an overhaul or you’re considering outsourcing them altogether. Either way, Palmetto Payroll can help. We invite you to learn more about our services and then contact us to request an appointment.