Three Costly Accounting Mistakes to Avoid
Small business owners have a lot on their plates and accounting mistakes can happen. Time simply does not allow you to become an expert in all the areas required for running a business. Here are a couple of common accounting mistakes that we see all the time. Correcting them will help you be more productive and profitable in your business.
Maintaining receipts are challenging for everyone, but the IRS requires that you have proof of business expenditures. Periodically, we come across people who feel that keeping the credit card statements are enough; unfortunately, they’re not. You’ll want to create a process to keep your receipts all in one place so they don’t get lost.
Receipts printed on thermal paper (think gas station receipts and many more) will fade within a year or two, and the bad news is the IRS could audit several years back if they come calling. Correct this by scanning them in or taking a clear picture of them using your smartphone.
Some accounting systems and/or document management applications allow you to upload the receipt and attach it to the transaction in your accounting system. This is a great solution, and if you’re interested in this, please ask us about it.
Ignoring the accounting reports
There are gold nuggets in your accounting reports, but some business owners don’t take the time to review them or are uncertain about how to interpret them. This is when accounting mistakes can happen. We can help you understand the reports and find the gold nuggets that can help you take action toward profitability.
Some of the things you can do with your reports include:
- Identifying your highest selling services or products
- Projecting cash flow so you’re not caught short at payroll time
- Getting clear on your top customers or your demographic of top customers
- Evaluating your marketing or business development spend
- Pointing out trends compared to prior years, budget, or seasonality effects
- Checking up on profit margins per product or service to make sure you are priced correctly
- Managing aging receivables or speeding up collections
- Measuring employee profitability, if relevant
- And so much more
Being proactive with your accounting will help you spot opportunities in your business that you can act on, as well as spot and correct accounting mistakes long before they manifest into trouble.
Mixing business and pleasure
In your bank accounts and on your credit cards, mixing business and pleasure is to be avoided when possible. All businesses should have a separate bank account, and all business transactions should go through there. It takes an accountant much longer to correctly book a business deposit that was deposited into a personal account. Avoiding accounting mistakes in the first place saves everyone a lot of time and energy.
Taking out a separate credit card and putting all your business transactions on it will save your bookkeeper a ton of time. The credit card doesn’t even have to be a business credit card. It can just be a personal credit card that’s solely used for business. If you have employees making credit card charges, sometimes a separate card for them helps you control fraud.
The hardest area in which to separate business from pleasure is cash transactions. Be sure your accountant knows about these. The accountant can either set up a petty cash account or a reimbursement process so that you can get credit for cash expenditures that are for the business.
How did you rate on these three accounting mistakes? Avoid these three and your accounting department as well as your business will run a lot smoother.
Connect with Shannon:
Facebook Group: Profit First for Fitness Business Owners
**We help stressed and struggling fitness business owners transform from surviving to making a consistent paycheck. Learn how to improve your business finances with our Keep Your Money Method. Sign up now for our next FREE group by clicking HERE**
Shannon Simmons, a 10-year business owner, and 5-year Profit First Coach is the owner of Netbooks Accounting Services, LLC. She is one of the original Profit First Professionals when the concept was created by Mike Michalowicz.
NetBooks is your gym and fitness center’s business partner in achieving levels of profitability, accounting integrity, and financial reporting that will allow your business to do more than just thrive but to achieve the highest levels of profitability.
Our professionals are intimate with the fitness market and will guide you through creating the right plans, managing your operations and accomplishing your goals. Think we might be a good fit? Click Here to find out!