Small business owners have a lot on their plates, and time simply does not allow you to become an expert in all the areas required for running a business. Here are a couple of common mistakes we see all the time. Correcting them will help you be more productive and profitable in your business.
- Mismanaging receipts
Maintaining receipts are challenging for everyone, but the IRS requires that you have proof of business expenditures. Periodically, we come across people who feel that keeping their credit card statements are enough; unfortunately, they’re not. You’ll want to create a process to keep your receipts all in one place so you don’t lose them.
Receipts printed on thermal paper (such as gas station receipts) will fade within a year or two, and the bad news is the IRS could audit several years back if they come calling. Correct this by scanning them in, or taking a clear picture of them using your smartphone. (This is also a good idea if you’re looking to go paperless.)
Some accounting systems and/or document management applications allow you to upload the receipt and attach it to the transaction in your accounting system. This is a great solution, and if you’re interested in this, please ask us about it.
- Ignoring the accounting reports
There are gold nuggets in your accounting reports, but some business owners don’t take the time to review them or are uncertain about how to interpret them. We can help you understand the reports and find the important information that can help you take action toward profitability.
Some of the things you can do with your reports include:
- Identifying your highest selling services or products
- Projecting cash flow so you’re not caught short at payroll time
- Knowing your top customers, or your demographic of top customers
- Evaluating your marketing or business development expenses
- Pointing out trends compared to prior years, budgets, or seasonal effects
- Checking up on profit margins per product or service to make sure they are priced correctly
- Managing aging receivables or speeding up collections
- Measuring employee profitability, if relevant
- And much more!
Being proactive with your accounting will help you spot opportunities in your business that you can act on, as well as spot and correct problems long before they manifest into trouble.
- Mixing business and pleasure
In your bank accounts and on your credit cards, avoid mixing business and pleasure as much as possible. All businesses should have a separate bank account, and all business transactions should go through there. This is because it takes an accountant much longer to correctly book a business deposit that was deposited into a personal account. It’s also an unethical practice that can get you into big trouble with the IRS.
Taking out a separate credit card and putting all your business transactions on it will save your bookkeeper a ton of time. The credit card doesn’t even have to be a business credit card. It can simply be a personal credit card you use solely for business. If you have employees making credit card charges, a separate card for them can help you control fraud.
The hardest area in which to separate business from pleasure is cash transactions. Be sure your accountant knows about these. The accountant can either set up a petty cash account or a reimbursement process so that you can get credit for cash expenditures that are for the business.
Are you committing these three mistakes? If so, work on avoiding them and your accounting department, as well as your business, will run a lot smoother. And contact Innovative Financial Services, LLC today if we can help in any way!