As business owners its all about making the most of our limited time and budget. And, we take on a lot of tasks we don't like - and we're not good at - for the sake of saving a dollar or maintaining total control over our business. For this post, I decided to focus on accounting ... because as a right-brain, creative-type, its not my bag. But, if you're in business to make a profit (and I hope you are), you better find a way to like it, even love it -- or hire someone who does. To help me, I interviewed Acccountfully, Charleston's-own modern accounting firm that specializes in outsourced accounting services for small businesses. You can read more about them here, but for now, onto the tips! - Melissa B
Accounting for Small Business: 10 Mistakes You Might Be Making
1. Classifying Employees Incorrectly
Thanks to technology and cloud-based systems, today’s business owners have the luxury of hiring remote workers. Unfortunately, this can complicate things when it comes time to classify them as either full-time employees or independent contractors. While one requires a 1099 the other requires a W2 with payroll taxes—this is imperative come tax season.
2. Avoiding “New” Technology
Some things are still just better suited for good old-fashioned pen and paper – but accounting for a small business is not one of them. Leveraging technology, automating bookkeeping tasks, and partnering with an accounting professional to oversee your finances will make life easier. In true “work smarter not harder” fashion, embrace the automated functions that were designed to save you time, and organize all of your data in a meaningful way.
3. Procrastinating Sending Invoices
It is critical that invoices are paid punctually. Allowing invoices to backlog can affect your profitability, negatively affect cash flow, and even mess with your credit – no thanks! Consider outsourcing this bookkeeping function so you can focus on the things you’re good at. Want to keep it in-house? Delegate this task to an organized employee who has the capacity to help.
4. Making Big Decisions Alone
Your small business journey is a series of choices – some big, some small. The big decisions are investments that require a lot of careful thought. If you are hiring new employees, leasing a new office space, or offering a new service… it is essential to marry the creative vision and the functional finances. Work with your accountant, your team, or your agency in order to make these big decisions the right way. If you do your accounting on your own, consider hiring a consultant for a fresh perspective.
5. Forgetting to Do a System Backup
Run – don’t walk – to complete a system backup. Whether you rely on software, an agency, or do your accounting in-house manually, technology is not invincible. Don’t let a system error or crash result in losing important files that will set you back in any way. We love cloud-based systems that keep your backups safe and accessible at all times.
6. Not Anticipating Growth
The best way to get ahead is to think ahead. Anticipate D while tackling A, B, and C. Your small business will grow, so with a proactive financial scaling strategy, that transition can be more seamless. Often small businesses are so wrapped up in the urgent day-to-day that they put next year on the back burner. Stay ahead of your growth curve by making sure you’re being proactive rather than reactive. This will put your business in a position to take advantage of new growth opportunities.
7. Picking The Wrong Person for the Job
Person, team, automated system… whichever you’re working with, make sure it is the right one for the job. If you have one full-time accountant, make sure you anticipate a back up plan for when they are sick or on vacation. With a team, communication and organization is key. Going with an automated system? Take a tour, interview the sales rep, and utilize all of the free resources to make sure it’s the right fit for your company size, budget and needs. Every business is different and requires a different approach—what worked wonders for your friend’s business might not be right for yours.
8. Ignoring the IRS
A letter from the IRS comes every once in a while, and you’re not sure what it means so it gets tossed aside into the “later” pile. Suddenly 6 months have gone by and you’ve got a payroll or income tax problem that you let get away from you. Any notice from the IRS is important. 1. Open it immediately. 2. Work with a professional who can explain your options 3. Stay on top of it.
9. Being Reactive vs. Proactive
Don’t fall into the reactive trap – meaning you are always on defense, or playing catch-up. Pay invoices immediately, set up a plan for filing and paying taxes on time, save receipts (digitally), track all of your reimbursable expenses, meet with your accountant, team or representative frequently to discuss financials. “If you’re early you’re on time, and if you’re on time you’re late.”
10. Not Knowing When to Delegate or Outsource
As business owners we often feel as though we need to be superheros - up for any task and tackling things we're even uncomfortable doing. Take time to inventory whether or not your time could be better spent on other things, and consider delegating or outsourcing the nitty gritty of accounting tasks to someone else.
Special Thanks to Accountfully, for their inputs and guidance on this topic.
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