Starting a small business requires an entrepreneur to think holistically about making money and keeping the books in order. That means staying on top of the financial side of business is necessary. The best way to avoid accounting issues is to correct them before they become problematic. Ignoring common accounting errors and financial reporting mistakes could lead to significant complications, so it needs an entrepreneur’s attention from the get-go.
1. Avoiding and denying a need for accounting
For a brand-new entrepreneur with little financial knowledge, the idea of bookkeeping may be daunting. Many startup and small business founders have strong skill sets, such as fluency in coding or certification as a life coach, but they need to be qualified to run all aspects required for a company to function. However, know that you can’t sidestep the need to keep track of your finances, or else you will create a headache for yourself.
Luckily, for the number-phobic amongst us, there are plenty of options. There are a variety of accounting software options. If learning new software is not on your priority list, consider engaging a part-time bookkeeper to crunch numbers for a reasonable fee and help avoid bookkeeping blunders.
Another option is to outsource administrative tasks, like accounting, so that someone does the work for you. Your books will stay organized for a reasonable fee. Outsourcing experts also manage your company’s financial needs — from sending invoices and tracking receivables to updating your investors and keeping you audit-ready. It’s like having a full-service finance department without the need to make several full-time hires.
2. Trying to do it all yourself
Once you prioritize accounting for your business, you may be tempted to pile it all on your plate to save a few bucks. Don’t! Less than two-thirds of individuals who claim financial literacy understand basic economic concepts like interest rates and inflation. (In younger age brackets, only 14% grasp these ideas!)
While it may seem manageable during the initial stages of developing your company, the demand and complexity of its finances will continue to escalate as your business grows. Hiring reliable, experienced accounting services will quickly prove to be a worthy investment and will help you avoid unnecessary mistakes like tax filing errors and payroll processing mistakes. Individuals who seek the help of outside financial professionals not only lower their stress levels, rates of delinquency, or debt but will also avoid risk by staying compliant.
3. Combining personal and business bank accounts
When starting a business, it may seem like the easiest option to lump your personal and professional spending into a single account, but this quickly causes issues and budgeting mistakes. Establishing a separate company account makes managing and tracking expenses easier and simplifies the tax filing process.
A separate account for your work-related affairs enables you to deduct losses from income more efficiently, makes it easier should the IRS ask any questions or choose to audit you, and makes your business look less like a ‘hobby’ — thereby preventing you from claiming losses or audit inaccuracies should they occur.
A unique business account also creates an essential mental distinction that will enable you to feel more empowered to drive revenue. If you are paying other employees, sending them a check from an LLC (or other corporate entity) is far more professional than sending one from your checking account. Paying wages from LLCs also ties back to keeping your assets free from liability if you are in a legal situation.
4. Not staying organized
Maintaining order is essential in all aspects of business, but it is especially crucial for the financial side of startups. Tracking your accounting in digital, organized documents is vital, as is retaining receipts from business expenses. The mere appearance of orderliness (read: files in their rightful places, organized desktop documents, a tidy desk) may help keep your mindset oriented towards achievement and goal-setting.
It may seem tempting to ignore the details of your startup spending, but you’ll be grateful for a highly organized system during tax season, so it’s best to keep it going from the start. The experience of starting a new business comes with both enticing and intimidating to-dos, but putting effort into establishing and maintaining an organized, well-managed accounting system will ease your challenges. You’ll point your business towards further success by correcting existing issues and preventing further stress.
5. Failing to back up your data frequently
Technology is designed to make our lives easier, but when things go wrong, chaos ensues. It’s critical to back up all of your data frequently. Data backup reminders are included in some accounting software tools. All you have to do is obey the reminders when they come up to avoid financial record discrepancies. Whether you are keeping track of your finances or are outsourcing your accounting needs, keeping several copies of your data in various secure locations will save you a lot of anxiety and potential financial liability in the event of hardware or software breakdowns, power outages, and other unforeseen circumstances.
Effective financial management is the bedrock of successful businesses. It requires a proactive approach that acknowledges common accounting pitfalls and implements strategies to mitigate them. Entrepreneurs must recognize the importance of maintaining accurate records, separating personal and business finances, and seeking professional assistance when needed. By prioritizing sound financial practices from the outset, businesses can minimize risks, streamline operations, and pave the way for sustainable growth.
Moreover, in today’s rapidly evolving business landscape, the significance of data backup cannot be overstated. Safeguarding financial data through regular backups is essential for protecting against unforeseen technical failures or security breaches. By adopting a proactive stance towards data security, entrepreneurs can ensure the integrity and reliability of their financial records, thereby fortifying their businesses against potential disruptions and setbacks.
Want more? Escalon has helped over 5,000 companies across a range of industries to optimize routine business functions, like HR and payroll, and operate more efficiently. Talk to an expert today.
