Managing the way money flows into and out of your business is critical to set yourself up for long-term success. If your books aren’t balanced and in check, it can create financial and legal problems that may derail your momentum and undermine your ambitions. Being aware of some of the most common accounting mistakes small businesses make can make a huge difference as you build toward bigger and better things.
Hire a professional
Possibly the worst accounting mistake you can make as a small-business owner is trying to handle everything on your own. The Balance Money contributor Dennis Najjar notes the growth of your business depends on your willingness to hand off responsibilities to those who may be better qualified to handle them — and that includes bookkeeping and accounting. Whether you work with an independent accountant or bring on employees with accounting experience and know-how, your willingness to put your accounting into the hands of experts can save you time and money that would be better spent elsewhere.
Keep personal and business separate
Keeping your personal assets and your business assets separate is an essential part of protecting yourself on both fronts. That same principle holds for accounting and finances — LinkedIn Pulse contributor Marelize Bott notes even in cases where you can pay for business expenses using personal funds, it’s important to keep everything distinct and in its place. Keeping a business account and only using it for business transactions prevents you from having to parse everything out in hindsight come tax time.
Properly classifying your personnel
A surefire way to find yourself in a financial quagmire is not being aware of how to classify and tax the people who work for you. Business.com contributor Jamie Johnson points out businesses can rely on a mix of employees, independent contractors, and freelancers. If you misclassify employees as independent contractors, for example, you could find yourself owing a substantial amount of money for not providing benefits or covering your share of tax obligations. Familiarize yourself with the parameters that distinguish employees from non-employees and make sure you are abiding by those standards.
Save everything
Properly managing your business from the financial side means tracking the movement of every dollar. The IRS offers an extensive list of the documents and records you need to keep, including invoices, sales slips, and even canceled checks. Businesses should keep all receipts for expenses of $75 or more, but Score.org says even smaller expense receipts should be kept in some form or fashion. If you want to minimize physical clutter, you can scan receipts using an accounting app and store the physical receipts in a safe, out-of-sight location.
Working with financial professionals at a critical stage of your business’s growth can help you take things to a new level. Not only will this free you up to focus on other areas of business operations, but it will also help you avoid these and other accounting mistakes in the long run.