What makes you want to DIY your business’s accounting? There are a few reasons why some small business owners want to go with a more affordable option. However, what you pay for is what you get – and cheap accounting can often result in record inaccuracies, a short-term focus, and fear of change. Don’t even get us started on missed opportunities!
Working with small businesses in Minneapolis and beyond for more than 50 years, we’ve seen our fair share of accounting mistakes by owners and operators. Most of these small business accounting mistakes are simple to correct, but even easier to avoid (once you’re aware of them).
Cut out mistakes before they happen! This article touches on the top three accounting mistakes made by small businesses, along with a bonus mistake to avoid at the end.
For the sake of saving some money upfront, small business owners sometimes try to take on their own accounting. However, this means you're losing more of your time.
Who isn’t pressed for time? While skipping routine accounting tasks may sound like a time saver, correcting accounting errors after the fact actually takes more time out of your day. Here are the mistakes that you're probably running into.
1. Failing to Reconcile Bank Accounts
Reconciling your bank accounts means matching up your accounting software to your bank statements. This is essential for small businesses to ensure that all transactions have been completely and accurately captured in the accounting record on an ongoing basis.
Failure to reconcile bank accounts is one of the most common risks that small businesses face. Most small businesses are doing this once per quarter – or whenever they get the chance. We recommend reconciling your bank accounts monthly.
If you don’t reconcile your bank accounts each month, it puts the business at risk for the following:
- Misappropriation of cash
- Increased risk of basic accounting errors
- Inaccurate financial and tax reporting
- Loss of deposited funds from bank errors
- Various penalties and fees with NSF checks or overdrafts
2. Only Focusing on the Short Term
With the day-to-day hustle of running a small business, it’s easy to fixate on the short term. Accounting, however, is not just about keeping track of today’s numbers. Small business owners should also use accounting practices that forecast future potential and identify any financial risks ahead. With the need to look to the future, there are many issues to consider, including opportunities for growth.
If you don’t know where to start with looking to the future, consider looking into tax planning and getting tax projections done for your business. Year-round tax strategy goes beyond what an annual tax accountant can provide for you since they’re only in your books once per year.
3. Not Letting Go
As a small business owner, it’s tough to admit that you need help, but there are situations when resisting professional help is a major mistake. It’s okay to admit that accounting may not be your area of expertise. You likely started your business with a great idea or solution that had nothing to do with accounting; that’s where your focus should be.
While you won’t be able to tell when an accountant can help you most of the time (such as when you owe more in taxes than you should, accounting items are incorrectly coded, etc.), be aware that an accountant should help you with large financial decisions where there can be repercussions for doing them incorrectly, such as:
- Buying equipment
- Taking out a loan
- Considering offering a new product or service line
- Selling something when you have little knowledge of sales tax
There’s a time for every small business owner to note that a do-it-yourself approach is limiting potential. Hiring some extra help for your accounting functions is not a sign of weakness; it’s a sign that you’re ready to grow your business.
Most likely, you're concerned that having somebody else do the work will cost you an arm and a leg. However, record inaccuracies can result in penalties and interest down the line or make you miss out on reimbursable expenses. Not to mention, going through an audit will take up a lot of the time that you could have put toward making profits.
How can you tell if your bookkeeping is getting mixed up? Start by taking a look at your financial statements. Here are some common red flags.
Bonus Mistake: Hiring the Wrong Accountant
Whether it’s a family member or an inexperienced part-time accountant, the wrong hire can create financial problems that go beyond just making uninformed decisions. Hiring the wrong person to take on the accounting responsibilities can haunt your small business for many years to come.
Read more about how to find the right accounting firm for you and the common fears that keep small business owners from switching accountants here.
Consider Outsourcing With a Monthly Accounting Firm
Outsourcing for the first time can be a big step! To some, big steps are exciting. To others, big steps are overwhelming. Now that you know more about the major accounting mistakes that affect small businesses, we hope you're leaning more toward the exciting side of things.
If you're interested in having a discussion to see if we can be a good fit for you, click the button below for a free consultation.
Not ready to have a conversation? That’s alright! First, you should know about the process of transitioning from in-house to outsourced accounting.
