A firm grasp on account management of your new business significantly impacts its growth and success. Failing to understand the dos and don’ts of business accounting can hamper profits and incur high costs.
According to a report, only one-third of American small businesses employ an expert bookkeeper. The same report revealed that almost 66% of the business owners have no plans to hire one in the near future.
A vast majority of new business owners prefer to handle their accounts themselves, which is completely fine as long as they know how to go about it. However, many of them attempt to test and trial methods to see which works best without professional help. This leads to erroneous calculations and ineffective bookkeeping.
Without a sound accounting system, foolproof compliance, and disciplined bookkeeping, driving a small business can be challenging.
Therefore, be aware of these four common startup business accounting mistakes when managing your venture’s books and transactions.
1. Failure to Keep Personal and Business Accounts Separate
A primary mistake many small business owners make is mixing personal and professional accounts. They often blur the line between the two types of finances when their business sets its foot in the market.
For example, you head to a supermarket to buy office supplies on your business’s account. But you suddenly see some grocery items on sale, and you pop some of those in your basket.
Activities like these can lead to a drastic gap between your investments and revenue, making it hard to keep track of your business finances.
According to Clutch, more than a quarter of the small business owners don’t have a separate bank account for their business transactions, and that’s not a good move. Mixing the two finances can cause problems when you apply for a business loan or a credit line since you’re then unable to provide an accurate financial snapshot of your earnings and expenditure.
If you’re also using a personal account to carry out business purchases and payments, head to the bank today and apply for a business account today.
2. Relying on Cash-Based Accounting
Although cash-based accounting is a traditional way of handling and managing cashflows, it results in an uneven and erroneous bookkeeping record. You might skip or duplicate a transaction when counting your finances.
Moreover, if you’re dealing with multiple business vendors, you might not be able to keep track of all the receipts and invoices of their record. Cash-based accounting is a short-term and ineffective solution for your business needs. It doesn’t take due diligence and track-recording into account and leads to fluctuations in business inflows and outflows.
While cash-based accounting might seem easy-to-manage and straightforward, consider implementing a system that has the potential to grow. A fully integrated, seamless accounting software like QuickBooks can be your perfect accounting partner!
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3. Relying on Excel for Long
Undoubtedly, Microsoft Excel is a fast and easy way to lodge accounting information, enter transaction data, keep vendor profiles, and create a revenue stream. But there’s a big chance your excel data is riddled with mistakes.
Excel doesn’t offer smart features like integrating and optimizing your accounting information for comprehensive tracking. Therefore, using advanced, well-designed accounting software such as QuickBooks helps you stay ahead of your receivables and payables.
Accounting software solutions are scalable, and let you optimize all your accounting and financial data by maintaining a complete audit trail. Many small business owners spend hours in making and managing excel data, leaving more critical business functions for later.
4. Ignoring Compliance
It can be challenging and overwhelming to study and meet all kinds of compliance regulations when running a small business. When you’re busy generating revenue and growing the business, you often forget the significance of reporting and compliance.
Businesses are expected to maintain specific, accurate, and up-to-date financial data that explains each transaction. These activities need to be reported to concerning authorities at the time, such as the SBA.
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Failing to comply with local and federal regulations when running a business can lead to hefty penalties. Moreover, you’re likely to receive a warning letter if your business breaches a regulation or lodges incorrect, special reports.
Simplify your business compliance management by cleaning up misarranged data and regularly reviewing shareholder information. Deploy a software system like QuickBooks that allows you to keep track of your payables and debt so you stay on top of payment deadlines.
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