Financial Mistakes Made by Small Business Owners

7 Biggest Financial Mistakes Made by Small Business Owners

The financial health of your business is a strong predictor to help you determine potential success in the future. Are you creating the foundation to grow and expand your company? A few simple accounting and bookkeeping mistakes might bring your hard work crumbling down.

Instead of reactively dealing with problems as they arise, right now is a great opportunity to make the commitment to proactively protect the financial interests of yourself and your company. Watch out for common pitfalls at the same time; it is important that you implement good financial systems that are built to last.

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Here at Easier Accounting, our goal is to keep you updated about the financial management of your small business. Here are a few small business accounting tips to help you avoid the common financial mistakes:

Mistake #1: Do-It-Yourself Tax Filing

Tax season can be stressful, and many small business owners make it worse by trying to handle their own taxes without talking to a professional. Even if you have experience with tax filing, you should still consider the benefits of tax services. You are already juggling enough to manage your other responsibilities, and tax paperwork will just pile on the work that needs to be completed.

To make things worse, some small business owners attempt to handle their taxes without any previous experience. Tax law can be confusing, and it changes every year. Instead of wasting your time trying to decipher the newest laws, it is essential that you have a professional who understands the nuances of your paperwork.

In serious situations, you might make a mistake on the paperwork… resulting in an audit or problems later on. Avoid these issues by hiring a small business accountant who can help you maximize your deductions and optimize your profitability for the year.

Hiring someone to help with tax services, such as quarterly and annual paperwork and filing, will reduce your stress levels and help you focus on the activities where you shine. It is worth the investment to enjoy the many benefits that are available.

Mistake #2: Failing to Hire a Bookkeeper

How can you manage the financial health of your company if the books aren’t up-to-date? Ongoing bookkeeping services are essential to help you manage outgoing expenses and income received. This tracking ensures that you are keeping up with important payments and staying ahead of the cash flow so that you can pay your employees each month.

Most of the time, small business owners get behind on their books because they are attempting to handle the bookkeeping on their own. Then, they find it hard to carve time out of their busy schedule to sort through receipts and balance the accounts each month.

Instead of over-committing your daily activities, find an accounting team that can offer the ongoing bookkeeping and tax planning services that will help you stay ahead of these tasks.

Mistake #3: Hiring the Wrong Financial Professional

Once you have made the decision that you want to hire a financial professional to help with bookkeeping and accounting, take your time to assess your options to hire the right person. For example, some business owners choose to hire a secretary-level employee to handle the bookkeeping instead of investing in professional accounting services. Even though the secretary might be able to keep up with some of the busy work, there is a higher possibility of error since that employee doesn’t have any experience with accounting.

Make sure that you choose a financial professional with previous related experience. It makes sense that you should pick someone who knows the ins-and-outs of small business accounting since you have a small business! Tap into their expertise to boost your numbers and maximize company profits each year.

Instead of bringing in an employee, you should think about outsourcing these tasks to an experienced team. Many business owners find that it is cheaper to hire an outsourcer compared to a full-time employee. At the same time, you are tapping into many years of experience that can be used to improve the financial outlook for your company.

Mistake #4: Overspending on Unnecessary Tools and Equipment

When was the last time you audited your spending to cut expenses? Even if you are bringing in a lot of money, you won’t be getting ahead if your expenses are high. These expenses can quickly add up over time, especially if you have ongoing monthly payments or annual overhead costs.

Look at your expenses to determine whether each line item is essential. Then, get rid of anything that isn’t being used or might not be unnecessary. For example, you might be able to get rid of an outdated software and upgrade to a cheaper solution that offers better efficiency.

It might be fun to invest in the latest-and-greatest computer systems or brand new office furniture. But, these expenses aren’t a good choice if your business doesn’t have the cash flow to support the purchases.

On the other hand, the right tax strategy can help you learn when to make these purchases to manage your tax burden in a given year. Sometimes, it might make sense to purchase equipment or furniture that is needed before the end of a calendar year, so that you can use the deductions to manage your tax bracket. These factors vary each year, which is why you need to make sure that you have an experienced accountant who can offer personalized advice for your tax strategy throughout the year.

Mistake #5: Mixing Personal and Business Finances

Even if you have a home based business, you need to be careful about keeping the expenses separate. It is common for small business owners to use the same credit card and checking account to pay for business costs and buy groceries for the family. These co-mingled expenses can muddy up the books and make it difficult to sort through business write-offs when it is tax time.

Set clear boundaries to make sure that you know the line between business and personal spending. This approach will help you to leverage your business write-offs as much as possible while maintaining documentation for all of the business expenses.

The IRS doesn’t like to see the mix of personal and business expenses. If they identify signs that your family vacation was mixed in with your business spending, then they could take an aggressive stance by auditing your company and charging fees for overdue taxes.

Mistake #6: Skipping Tax Payments

It might be surprising to learn that you need to make quarterly tax payments or bi-weekly employment tax deposits. Most people without a financial background mistakenly assume that they only need to address tax payments and paperwork once a year.

Missed payments could result in penalties and problems later on. Talk to your accountant to learn about the ongoing payments that need to be made. Your accounting team can handle the paperwork and simplify the process so that you don’t have to stress about anything.

The goal with these tax payments is to estimate the amount of money that will be due for the year, then break it into smaller payments. The right accounting system can help you track current numbers so that you always know how much needs to be paid when it is time to send a quarterly tax payment.

Mistake #7: Misunderstanding Credit Agreements

If you have a small business loan or company credit card, then you need to make sure that you understand the agreements for each line of credit. Even though you are making payments on time, your credit position might not be optimized if you don’t understand the interest costs and fees that you are paying. Look at the agreements and read the fine print to know what to expect if you carry a balance on that card.

There are situations where you might already be tied into high-interest rate cards or unreasonable fees for the money that has been borrowed. In these scenarios, consider contacting the credit company to find out about payment options or interest-lowering steps that can be used. Sometimes a simple phone call can go a long way to help you save money by reducing credit-related costs.

Remember, there is a wide range of financial services that are available. So, if you aren’t satisfied with your current credit card or business account, then you might make the switch to something that is a better fit for your company.

Hire the Best Small Business Accounting Team

Here at Easier Accounting, we offer the services that you need to help your company succeed. We know that small business owners are juggling many responsibilities, and our goal is to help by simplifying the financial strategy so that you can maximize profits.

Accounting services are more than just basic tax filing and income reports. We will strategize with you to show solutions that will improve the financial health of your company. Our services can be catered to match your needs.

Learn more about how you can benefit from small business accounting services by contacting us to schedule a consultation: (888) 620-0770

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