Sizeable numbers of retirees launch small businesses every year. They do this out of ambition, restlessness and— let’s face it—to help pay the bills. We’ve actually written about this trend extensively in one of our free E-Books: The Seniorpreneur Imperative.
Accounting is an essential tool when it comes to running a successful business of any size—be it small, medium or large. The same basic principles of accounting apply to them all. Everyone has to reconcile their earnings, losses and profits to the government (both Federal and Provincial) on an annual, and sometimes, monthly basis.
Therefore, small business owners need to be just as efficient as any large business to meet the taxman’s requirements. Good accounting practices will help you make smart financial decisions and also help you stay organised. With proper accounting practices, you can be sure that your financials are in order when it comes to tax time, and also ensures that your business remains competitive and solvent.
However, mistakes can happen, especially when you’re a small business owner and you’re doing your own monthly/annual accounting and bookkeeping. Often a small business will only hire a professional accountant at the company’s year-end, so what’s recorded and accounted for during the twelve months prior to any tax deadline needs to be done diligently and as accurately as possible—supported by statements of accounts, receipts and invoices—just to name a few items.
The following are some of the most common accounting/bookkeeping mistakes small (and large) businesses make or can be found guilty of. Think of this as a checklist if you are finding yourself floundering when it comes to your business accounting. If you find yourself saying “yes, this describes my business” to any of the mistakes listed below, make the necessary improvements until that’s no longer the case!
1. Your Accounting Records Are Not Accurate
One of the biggest accounting mistakes is not keeping accurate records. It’s essential to track all of your financial transactions and keep up-to-date records of accounts receivable, accounts payable, profits and losses, expenses and so on (also known as “The Books”). This will help you measure the financial health of your business and enable you to make accurate decisions based on your true financial picture.
2. Your Accounting Technology & Software Is Out Of Date
Since technology is constantly evolving, it’s important to stay up to date with the latest accounting software and other financial/bookkeeping tools available for the small business owner. Using current software will help reduce any manual errors, streamline your accounting process, and ensure that your records are concise and accurate.
3. Your Bank Accounts Aren’t Reconciled
Another common accounting mistake is not reconciling your bank accounts. This means ensuring that the balances in your business’ bank accounts match up with what’s recorded in your business’ books. This helps to ensure that all transactions are accounted for and that there are no discrepancies. Even on a personal financial level, everyone should reconcile their banking statements each month.
4. You Aren’t Keeping An Eye On Cash Flow
Cash flow is an important part of running most businesses and it’s important to pay attention to it. Make sure to track your income and expenses and ensure that your accounts are balanced. Do this on a monthly basis in order to avoid running into any financial problems.
5. Your Financial Data Isn’t Backed Up
Make sure to back up your data on a regular basis and keep it in a secure location. Keeping digital and also paper records can help protect it from potential loss. Again, there is all sorts of business software out there to help you be sure your financial documents are safe and in order.
6. You’ve Neglected To Keep Business & Personal Expenses Separate
This is self-explanatory. It’s all too easy to mistakenly charge a personal item to a business or mis-allocate funds to your business account. Not good! Don’t make the mistake of mixing personal expenses with business expenses. The taxman will not be happy if you do and are ever on the alert to anomalies. Business is business and personal is personal. A good way to ensure expenses don’t overlap between personal and business is to have a dedicated small business bank account and credit card associated with it. Know that your tax returns will reveal any discrepancies and the penalties could be serious or at the very least, cause you more accounting trouble than it’s worth.
7. You Haven’t Stayed On Top Of Your Taxes
Finally, taxes are an important part of running a business and it’s essential to keep track of them and pay any instalments, etc. on time to avoid extra interest charges. Make sure to stay up to date with the latest tax laws and regulations (or hire a professional who does this for a living and keep your sanity) and make sure that all your business taxes (including HST/GST) are filed on time.
Smart Accounting Practices Pay Off
Your business will profit from you heeding the advice we’ve outlined above. By avoiding these common accounting mistakes, you’ll be more confident that your company’s finances are in order and that your business is being run and managed in a fiscally responsible manner.