Accounting is undoubtedly one of the most complex parts of running a business. How a small business manages it books can actually mean the difference between success and disaster. Some entrepreneurs in Naples, FL are passionate about their core product but don’t have a skilled accountant to rely on. As a result, they sometimes commit mistakes that can prove fatal to their finances. The three most common errors include:
- Not drawing boundaries between personal and business finances. Opening a separate bank account for the business and the family’s personal budget is crucial to prevent the two from getting mixed up. If a business is able to generate a large amount of revenue, it can give a mistaken sense of abundance that can lead to spending considerable money for personal use (when any revenue is supposed to form part of the business funds). In addition, mixing business and personal finances can cause trouble with the IRS if deductibles filed include personal items like concert tickets, video games, or a holiday cruise.
- Not keeping records up to date. When some data are not recorded, all forecasts derived from the financial statements are automatically inaccurate. “Errors by omission” include expenses and inventory not being recorded or adjusted to their current counts; the balance sheet may trick the owner into believing the business is in a sound financial shape. Moreover, keeping the books current is important because it helps keep track of the company’s obligations, necessary to maintain trust among its suppliers and creditors. One the side, keeping an eye on its expenses can also bring to attention erroneous and possibly fraudulent transactions.
- Not investing in the right person. Accounting involves handling money, so some entrepreneurs tend to leave the job to a friend or relative if they can’t do it themselves. It’s helps saves on salary expenses, but oftentimes, productivity is greatly impaired in the event of relationship turmoil. The worst case is if the person assigned doesn’t have expertise; errors can easily invite IRS tax audits and hefty penalties.
There are many areas in business operations where it’s perfectly reasonable to cut costs on, but these don’t include accounting. To keep records tight and neat, it pays for startups and small businesses to consider shifting from DIY work to hiring a skilled bookkeeper or accountant from trusted Naples, FL companies like Perfect Accounting Service.
Accounting Errors That Affect the Balance Sheet, SmallBusinessChron.com
Avoid These Five Common Small Business Accounting Mistakes, Forbes.com