Introduction
Accounting mistakes can be very problematic, especially if you’re new to the business world. Just like with cooking or anything else in life, there’s no substitute for experience. But even if you’re an expert cook, there’s always room for improvement. Luckily, we’ve compiled a list of accounting mistakes that any entrepreneur should avoid:
Forgetting to Hire a Professional
One of the most common accounting mistakes new business owners make is failing to hire a professional. While you might be able to do your own books, it’s important to understand that this can be an expensive mistake.
For example, if you take on the role of doing your own bookkeeping and accounting for your company, then over time it could cost you thousands of dollars in fees and penalties.
By hiring an accountant from the start, not only will you save yourself a lot of time and hassle but also avoid unexpected costs down the road such as fines from government agencies or other miscellaneous charges like interest on late payments
If hiring a professional accountant seems too expensive for your business at this time, then consider splitting up some tasks between yourself and another employee who has more experience with bookkeeping/accounting tasks like payroll processing or invoicing customers.
Waiting Until the End of the Year to Plan
If you’re a new business owner, you probably have a lot on your plate. You’re working hard to build and grow your company. That’s great! But it’s important to remember that the success of your business is far from fully determined by how hard you work now. In fact, many people believe that the future success of their companies depends more on planning than it does on doing—the time spent actively plotting out what the company will look like years down the road is what will ultimately make all the difference for them in terms of achieving their goals.
This idea applies equally well to personal finances as well: when it comes down to it, having an effective plan can mean everything between financial security or destitution later in life (or both!). The sooner we start planning for our own futures and taking steps toward achieving our goals—whether they’re related directly with our finances or not—the better off we’ll be once those plans come together into reality.”
Failing to Separate Personal and Business Transactions
- Separating personal and business transactions is a crucial part of keeping your financial records organized. You might think this is obvious, but many new business owners still have trouble separating their personal and business finances.
- Why? Because it’s hard! Most people have never done it before, so they’re not sure how to go about it.
- That’s why we’ve put together a list of tips for keeping your personal and business finances separate:
- Never use your company bank account for anything that isn’t directly related to your company (for example, buying groceries for yourself). This can be difficult when you don’t have another account set up yet, but once you do start using one, try to follow these rules as best as possible. This will help keep things clean at tax time when the government wants to know which expenses are deductible. Also: make sure that whoever handles payroll gets this memo too! If they don’t understand how important this is from an accounting perspective then chances are good that mistakes will happen down the road (and trust me—they will).
Not Doing Regular Reconciliations
Regular reconciliations are vital to make sure your accounts are in order. A bank reconciliation is a report that compares the balances of your business accounts with those at the bank. This type of reconciliation helps you spot any errors made by your bookkeeper or accountant and to ensure that all transactions have been posted properly.
A trial balance is another type of financial statement used for account verification. It will provide an overview of all current assets, liabilities and equity on hand at a specific point in time—usually at the end of each month or quarter—and compare them with what was recorded in books during that period.
Consider using an expense tracking and bookkeeping tool like Quickbooks to keep things organised!
Not Documenting Everything or Keeping Records
Not keeping records:
One of the most common mistakes entrepreneurs make is not documenting everything. This can be especially detrimental if you have to go to court over a business dispute, or if you want to sell your company for more than $200,000. Documentation will help you prove how much money has been made over the lifetime of your business. It also helps you keep track of which expenses are deductible, and can be used in legal cases if there’s ever any confusion about whether something was actually used for business or just personal use (e.g., “You’re not allowed to write off an entire trip as a tax deduction because it wasn’t necessary for work”).
Incorrectly Classifying Employees or Contractors
New business owners often fail to correctly classify their employees or contractors, which can have serious financial consequences. It’s important for you to know the difference between an employee and a contractor so that you can make sure that your company is paying its fair share of payroll taxes and health insurance premiums.
If you have any doubt about whether an individual is an independent contractor or an employee, consult with a tax advisor before making your decision. If it turns out that they were incorrectly classified as an independent contractor, it may mean facing fines from the IRS. If they’re incorrectly classified as employees instead, it may mean losing out on valuable deductions available only for businesses with self-employed workers who pay their own Social Security and Medicare taxes (FICA).
The best way to avoid this mistake is by having clear policies in place from day one: set clear expectations around work hours, dress code requirements and other factors that indicate how much autonomy the person has over their schedule; communicate those guidelines clearly; document everything related to employment status (e.g., contracts signed by both parties).
Making Payroll Errors
Payroll tax mistakes are one of the most common issues facing new business owners. This is because payroll taxes are a huge expense and they come with strict requirements and deadlines. Payroll taxes vary by state, so you will need to check the rules in your area before you start paying them. In addition to federal income taxes, employers also have to pay into Social Security and Medicare as well as unemployment insurance (if applicable).
As an employer, your responsibility lies in making sure that all these payments are made on time and for the correct amount—otherwise it can be very costly for you!
If you make an error when calculating or paying payroll taxes, the IRS may take action against you for non-payment or underpayment of payroll tax obligations.
Not Following State and Local Regulations
It’s important to follow local regulations. If you’re not aware of them, your business could be in legal trouble. There are a few ways to find out what your state and city require:
- The first way is to contact an accountant who specializes in accounting for small businesses. You can also contact the Small Business Administration or call your local chamber of commerce for guidance on finding an accountant or tax consultant who can help you navigate the tax laws in your area.
- Another thing to keep in mind is that there are two different types of accountants—one type helps people with their personal finances and another type focuses more on helping businesses grow (and make money). So if someone has told you that they’re an “accountant,” it’s important not only to ask if they have any experience working with small businesses but also what kind of specialty they have: taxation or management consulting? This will help ensure that they will be able to best serve all of your needs going forward!
Missing Tax Deadlines
One of the most common mistakes new business owners make is not filing taxes.
Even if you’re not making a lot of money, it’s important to file your taxes regularly and on time. Not only is it the law, but it can also help protect you from being held liable for back payments or penalties due to late filing. It’s also wise to consult with an experienced professional who can guide you through the process and ensure everything goes smoothly.
Accounting mistakes can be very problematic, so it’s important you either know enough to avoid them or you have an accountant.
The most important thing is to not make the same mistakes as others. It’s possible that you don’t have an accountant and you’re trying to do it yourself, but this can be extremely problematic. You need someone who knows what they are doing and how to avoid these common mistakes.
You also don’t want to wait until the last minute to get help. You can look into getting an accountant or just hiring someone from a company like FreeAgent that offers accounting services for small businesses – either way, do whatever it takes so that your books are in order before something goes wrong!
Finally, don’t ignore the problem! If your business is experiencing financial difficulties then take action now rather than later because when things start going downhill fast there may not be any time left before everything falls apart completely…
Conclusion
You’ve probably heard the saying “an ounce of prevention is worth a pound of cure.” That’s true for accounting mistakes, too! If you take care to avoid these errors in the first place, your business will be much better off. It can be tempting to try and do everything yourself—after all, who doesn’t like saving money? But if you don’t have at least a basic understanding of financial management, it’s time to reach out for help from an accountant or bookkeeper so that they can help keep your finances in order from day one.