Running a small business is no easy feat. This is why many small business owners make so many mistakes in the early stages of operation, especially when it comes to accounting. In many cases, accounting errors are made due to the shortage of proper knowledge regarding procedure. Although you may not necessarily have the desire to go to school to become an accountant, it may be wise to become familiar with a few accounting errors that many owners of small businesses make frequently so that you can avoid making them yourself:
Accounting Error #1: Attempting to Take Care of It All on Your Own.
Small business owners, especially those who are just starting out, are often trying to save money in any way that they can. For that reason, many choose to do their own accounting. Unfortunately, most business owners have little to no experience in bookkeeping and aren't 100 percent sure on how to do their books. This can lead to a lot of errors in the bookkeeping, which is the last thing you want since you need to know exactly how much you are bringing in and exactly how much is going out so that you can see just how successful your business is. So, it may be a good idea to consider hiring a professional accountant to oversee your books. This leads us into the next accounting mistake.
Accounting Error #2: Going with the Cheapest Accountant.
When you realize that you do need help with your books, you might want to pinch pennies. However, there will come a point in time when frugality can actually be a bad thing. When it comes to your business, you will want to pay a little bit extra to hire an experienced bookkeeper rather than save money and get the lowest-priced accountant on the block.
Accounting Error #3: Forgetting to Keep Minor Purchase Receipts.
As a small business, every single business-related purchase is important. No matter how much it is – even if it is just $5 or $10 here and there – it will add up at the end of the accounting cycle and at the end of the year. Therefore, you want to keep all receipts for all purchases. Plus, when it comes to filing your taxes and answering to good old Uncle Sam, you won't be able to legally claim the expense if you don't have solid proof to back it up.
Accounting Error #4: Not Negotiating with Your Vendors.
When it comes to business, negotiations can always be done. As a small business owner, you will likely purchase items from the exact same vendor on a monthly (or frequent) basis. You will want to build a strong relationship with these vendors. This is true even if small business purchases are made month after month, which will likely be the case if your business is just starting out or hasn't grown in size yet. Don't hesitate to give your vendor a call and negotiate extended payment terms, reduced pricing, etc. These things will help you allow a stronger cash flow into the business, while providing a strong foundation for your relationship with your vendor.