Strategic accounting mistakes among small- and medium-sized businesses are not unusual. Often, it’s not an accountant keeping the books; rather, it’s the business owner themselves or even a family member or friend.
But thorough, accurate accounting requires knowledge of basic accounting principles as well as best practices. Here are two more accounting mistakes to avoid.
1. Not Establishing an Accounting System
An Excel spreadsheet is not a proper accounting system. Neither is a pile of paper receipts wrapped in a rubber band. Even accounting software is a poor excuse for a comprehensive accounting system.
Without a proper accounting system – complete with established procedures for employees – lots of things can get lost in the cracks.
– Brenda Sherrodd, Avitus Accounting Services Manager
Employees might not bother to keep their receipts for small items. Receipts might get lost between the time they go into the collection shoebox and the time someone gets around to recording them for tax purposes.
And even if your company keeps all the receipts, someone still has to compile and enter them into some kind of record when tax time comes around. At that point, it’s easy to make mistakes and, even if you don’t make mistakes, the effort is more time-consuming and stressful than it should be.
By keeping track of expenses as you go – with a proper filing and record-keeping system – you can save money during tax season. You can also make better decisions during the course of the year because you have a view of your books as you go along.
2. Not Doing Taxes As You Go
Let’s face it: most people don’t want to think about taxes until the next tax season comes around.
For Average Joes and Janes, that’s not such a big deal, especially if you file an EZ form. Ten minutes work, and you can call it a day—you’re done with your taxes until next year. Unfortunately, businesses don’t work that way. Business taxes are complicated and something much better done as you go.
This is the case whether you do your company’s taxes yourself or you hire a tax professional to do the work for you (recommended). The last thing you want is to have to sift through a year’s worth of your receipts and finances trying to cobble together an accurate return—or pay an accountant to do it for you.
Keeping track of your expenses carefully throughout the year helps whoever does your taxes.
Extras Related to Doing Taxes As You Go
Keeping Small Receipts:
Don’t throw away small receipts—those under $75 that you are easily tempted to throw away.
Don’t. Those receipts add up, and they’re easy to keep when you establish a single place for them (yes, even a shoebox) and get into the habit of keeping them.
Small receipts can make it easier to figure out deductions, and they can provide you with documentation to back up those deductions.
Tracking Reimbursable Expenses:
Along with keeping hold of small receipts, tracking reimbursable expenses prevents those expenses from falling through the cracks.
Business owners in particular often pay for business expenses with their own money and then forget to have the company reimburse them. But they should. Those are business expenses, not personal ones.
Reconciling Books with Bank Statements:
It’s important to periodically reconcile your books with your bank accounts to catch small errors. Once a week, once a month—it’s up to you.
Reconciling the numbers in your ledgers (accounting software, more likely) with the numbers in your bank accounts on a regular basis will prevent small mistakes from adding up to big ones by fiscal year’s end.
Whoever is handling your accounting needs information on all financial transactions, no matter how small.
If the various departments of your company don’t communicate properly with the accounting department, your books will be off.
It could be as small and innocent as someone buying supplies and forgetting to pass on the receipt. All transactions matter.
A Proper System, Kept Up All Year
Every company, no matter the size, needs to have a proper accounting system in place—not a simple Excel spreadsheet, but an entire system.
And just because you don’t want to think about your taxes all year long doesn’t mean you shouldn’t. Doing taxes as you go through the year makes it easier during tax season, no matter who’s filing for your company.