Accounting Mistakes Can Cost You—Here Are 5 of the Biggest Blunders
June 10, 2017
More common than you might think, accounting mistakes have the power to cause instability, hinder growth and potentially get you into trouble. Because these errors can be so costly, we are going to explore not only what some of them are, but also how to avoid them. While some might consider these tips pretty basic, we frequently find these types of errors, and in the end following these tips could save you time, money and stress.
#1–Leave It To the Professionals
Of course, we are going to say this because it is what we do. But you wouldn’t let a chef take your appendix out, right? Well, the same can be said for doing your taxes and keeping your books. Can you save money by doing your taxes? Maybe. Underpay your tax bill, and you may incur costly interest and penalties not to mention the uncomfortable, and time-consuming conversations with the IRS. And who wants to pay more taxes because you failed to claim all of your deductions. Spending the money to hire an expert who stays on top of the ever-changing tax laws will ultimately save you time, money and headaches. And—if you hire a professional bookkeeper, you’ll have a second set of eyes to account for and assist in organizing your finances throughout the year. I don’t know anyone who appreciates surprises when it comes to their finances. The accuracy and organization of your finances is a crucial part of the success of any business.
#2–Lost In Translation
Have you ever sat across the desk from your accountant and felt like they were the teacher in the “Peanuts” (Charlie Brown) cartoon? You are Charlie Brown sitting in class, and the teacher is talking, but all you hear is “wa, wa, waa, waa, waa,” and this indiscernible droning goes on and on. Anything that makes you feel out of the loop and frustrated is a “no-win” situation. You need to be on the same page as your accountant. Of course, they have their acronyms, terminology, and buzzwords, but translating that into a language you understand needs to be something your accountant brings to the party. Don’t be afraid to speak up. This should be part of what you’re paying for–it’s your business, and you can’t afford to be on the outside looking in.
#3–Receivables + Procrastination = Lost Cash
Keeping track of receivables is not always the most fun part of running a business—but it is essential. The process is simple: you issue an invoice, the customer owes you money. As soon as you receive payment, apply it to the appropriate invoice and mark it as paid. Fail to keep up with this, and at tax time, you are left with a tangle of missing payments, unaccounted for deposits, and a growing list of receivables. And if you are not careful, this practice can result in high bad debt and in some situations a higher than necessary tax payment. Keeping current with receivables will save you time, money and resources in the long run. Tip—if you want to decrease the time spent on collections consider automating it with a combination of cloud accounting software and accepting payments online.
#4–Receipts, Receipts, Receipts
This is such an easy thing–save your business expense receipts! If you don’t, you may end up with cash flow, accounting, and ultimately tax problems. Not having that important little piece of paper that can provide you with details about a specific charge could result in incorrectly reported tax expenses and a high tax bill if ever audited. Think of this tip as a kind of “CYA”—Cover if You’re Audited. If you find saving all those receipts cumbersome, here are a couple of tips to simplify the process:
- When paying for business expenses, only use your business bank or credit card.
- Have a special place (such as an envelope) in your briefcase/bag/car to put all the receipts.
- Track your expenses as you go; many apps are available to do this from your mobile device (some will even allow you to take a picture and save an image of the receipt).
- If this idea doesn’t work for you, you can do it old school and go through the receipts weekly or monthly, filing them in your tax folder or saving digital copies in the cloud.
#5–Receipts, Receipts, Receipts Part 2
Now that you’re in the ‘save all business receipts’ mindset, don’t forget about the things you purchase with cash. Because when you pay with cash, it’s even easier to throw the receipt into the trash, or not even take one—we all do it, especially when we’re distracted or in a hurry. And without those cash receipts, some of your expenses will be unaccounted for and probably forgotten. And this overstated income results in higher income taxes for the year. Figure out a procedure to track your cash expenditures and stick to it—it will save you money in the long run.
Sources:
FreshBooks