Make the right move…
It is common among cash-strapped small businesses for the owners and their employees take on many responsibilities simultaneously. The job of financial accounting and general bookkeeping thus often goes to someone within the business who has not been formally trained for the task. Though this may be an effective way to reduce expenses, it could lead to some costly mistakes down the road.
1. Not hiring a professional or hiring someone who is unqualified for the job.
2. Not establishing formal accounting policies and procedures.
3. Not making use of available programs and tools.
4. Leaving out the fundamentals of bookkeeping.
5. Being ignorant of current accounting rules and legislation.
6. Not setting up back up systems.
Even if your budget is tight, you should make an effort to avoid these common pitfalls in small business accounting. Pay close attention to why…
1. Not hiring a professional or hiring someone who is unqualified for the job. These days cost-cutting has become a top priority among small business owners trying to keep their ventures going. However, there are several instances where the experience, know-how, and counsel of a qualified professional, such as a bookkeeper, tax preparer, or accountant is needed. Cost-cutting sometimes loses its value when the necessary “corners” are cut out.
2. Not establishing formal accounting policies and procedures. Creating clear accounting policies and procedures helps to ensure consistency and accuracy in the processing of transactions. This is particularly important when a business has several employees who may additionally share jobs and responsibilities. Common areas to consider include: the management and usage of petty cash, a system for employees to be reimbursed for business expenses, how to set up the filing system for clients, projects, or complex transactions, and finally how to keep the lines of communication open between management, employees, and the individual(s) who maintain the financial recording.
3. Not making use of available programs and tools. These days small businesses have access to a wealth of software programs and services that are specifically designed to help small businesses with their accounting, payroll, and tax obligations. While some of these options, such as Quickbooks, come at a cost; there are several free or low-cost open source programs available that can do a pretty decent job. There are even some mobile phone apps that can greatly enhance the way the transactions are recorded.
4. Leaving out the fundamentals of bookkeeping. Due to lack of know-how, experience, or time, many small business owners make the mistake of leaving out some fundamental bookkeeping steps, such as reconciling the books and bank statements every month, saving receipts (even for purchases less then $75), and properly tracking reimbursable expenses.
5. Being ignorant of current accounting rules and legislation. Since the person (or people) who are recording the financial information often have received any training, it opens the door to some common, yet potentially costly consequences. Often, seemingly harmless mistakes can attract the unwanted attention of the IRS. A few common examples include: not properly classifying employees versus independent contractors, consultants, and freelancers, not deducting the sales tax from the total sales, not claiming the full amount of tax deductions or using the tax deductions incorrectly, even using nontraditional expense categories or putting itemized expenses in the wrong category.
6. Not setting up back up systems. Business owners who do not establish a system for backing up financial data are asking for trouble- especially if data is only recorded electronically. There are several ways to back up your precious financial information: periodically transferring the data to a CD, purchasing an external hard drive, relying on tape back ups, or using online back-up services. Each option has its pros and cons, and you should do your research in order to find the most suitable match for your business. In addition, it is a good idea to have some hard copies of information on hand.[Article via Fast Up Front: Small Business Blog, Read the entire article at : Top Small Business Financial Accounting Mistakes]