Bookkeeping Errors That Can Ruin Your Business
The extent of your small business management skills may stop with the design of an innovative product or your convincing sales pitch. If you don’t have a good handle on your company finances, you can find yourself struggling to keep your cash flow positive, your expenses low, and your invoices paid on time. If this happens, you may see your business succumb to any of these common financial problems.
1. Expense Chaos
You may be aware of the costs associated with your inventory purchases or your insurance premiums, but there are many hidden costs that small business owners fail to track or even recognize. Most offices will have a petty cash supply, sometimes used for the occupational office lunch, an employee gift, or unexpected office purchase. With tracking where this money is going, you could find yourself spending a ridiculous amount of flavored coffee creamers, Chinese takeout, or other needless purchases. Not that treating your customers or employees to a nice lunch or perk is wrong, but without keeping an eye on what the money is being used for and how often, you could be wasting a lot of money over time. You also need to track recurring payments for purchases or interest fees on monthly accounts. While small, these can create a noticeable discrepancy in the money you think the company has and the actual cash amount in the bank for your business needs.
2. Lost Revenue
You may have offered your customers a payment plan in order to help close a sale, but the longer your company has outstanding receivables, the more strapped for cash your company will become. Failing to monitor who is paying what and when will damage your company’s bottom line. Without enough cash coming in, you may have a hard time finding the funds you need to pay for more inventory to meet other orders. You may have your own creditors or accounts that need to be paid. A disruption in your income may require you to look for temporary financing help. Small business owners are usually able to take advantage of quick business loans & funding from online or non-traditional lenders when they need to save their bottom line. This comes at an additional cost, by way of fees or interest rates, but unless you can quickly get your accounts caught up, you may have no other choice. Investing in an invoicing software can help keep up with customer accounts, as many of them offer automatic payment reminders and past due notices.
3. Tax Obligations
When you don’t keep an accurate record of your business expenses and income, you will have trouble when it comes time to file your company tax return. The expenses of operation usually help your tax numbers when you are able to count them as deductions, but without the paperwork proof and numerical data, you won’t be able to take advantage of the situation. The government won’t care that you could possibly be overpaying on your return, as it is your responsibility to track your expenses and have them ready for itemizing at tax time. You also need to separate your business and personal transactions and have the receipt for both in order to validate your filing claims.
4. Fees and Penalties
Just like you need to account for the deductions you can claim in order to avoid overpaying on your taxes, you need to carefully keep up with your company’s sales and payroll taxes to avoid underpaying. If you do not accurately report your earnings and your payroll numbers, the IRS and state regulators can impose fines or fees for non-payment. It will cost significant time and expense to resolve the situation, so proactively maintaining accurate books is the way to go. An audit by the IRS could be a costly problem, and when your company shows a loss for more than three years in a row, chances are good your company might be targeted.
5. Wasted Labor
Taking time to do your bookkeeping as you go and filing paperwork or receipts can become a part of a daily routine. This is much more cost-effective than having to rush around and scramble for information before trying to make a significant financial transaction. Calling for records or statements or spending the day calling customers with past due accounts is a waste of your time, especially when these things could have been prevented with more attention to the bookkeeping tasks. Wasted time is wasted money. You tend to make more mistakes when you are in a hurry or under stress, and it takes away from your ability to engage in tasks that will make your company money.
Accounting departments in major companies are able to keep the different areas of money management working in harmony, but as an owner without the support of other personnel or the use of a movement software, you could be in over your head with bookkeeping duties. Eliminate the hassle with sound management practices and the help of bookkeeping software.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.