A new business won’t survive long if it doesn’t have a strong cash flow and a good accounting system. Unfortunately, some of the most common financial problems stem from simple mistakes that new entrepreneurs can make the first time they are tasked with keeping the books.
Fortunately, there are ways to avoid or correct most of these common mistakes and preserve your business bottom line. To that end, a panel of Young Entrepreneur Council (YEC) members answered the following question:
“What is an accounting mistake that new business owners might tend to make, and why? How can they fix it?
Read on for their insights.
1. Focus on overall revenue
“Pay attention to actual profit and cash flow. Many new business owners focus on the overall revenue to come, but once you factor in the cost of goods, personnel, fixed costs, etc., the net profit of the business can be very high. different from the resulting income. ~Lisa Song Sutton, Sin City Cupcakes
2. Struggling with classifications
“New business owners sometimes find it difficult to categorize purchases as personal or business. As a result, executives may have to pay more or less on their taxes. This number may vary depending on the type of error. If you don’t don’t know how to file something, maybe it’s time to call a professional accountant to help you keep your finances on track.~Chris Christoff, MonsterInsights
3. Not Hiring Outside Help
“Accounting can make or break your business. Budgeting monthly expenses, bookkeeping, analysis of profit and cash flow statements, and financial planning are essential, detail-oriented tasks that require a lot of attention. If accounting is not your area of expertise, you need outside help quickly. Hire a professional who can focus on these activities while you manage and grow the business better. ~ Brian David Crane, Spreading Good Ideas
4. Ignore the difference between cash flow and profit
“The biggest accounting mistake that many new businesses make is ignoring the differences between cash flow and earnings. You can sell a product for $1,500, but what if the buyer doesn’t Don’t make the payment on time? In this case, your accounting records will show a profit, but you may not have the money despite the profit you made. So track your sales properly against your expenses. ~ Josh Kohlbach, Wholesale Suite
5. Reports on a cash basis instead of an accrual basis
“A common accounting error that business owners make is to report on a cash basis rather than on an accrual basis. A cash basis takes into account when money is received or spent; accrual accounts when the sale or expense occurs. In the future, if you are considering selling your business or even acquiring financing, advisors will only look at accrual accounting. ~Jessica Fialkovich, Exit Factor
6. Not recording expenses and deposits
“The number one mistake business owners make is that they don’t record expenses and deposits. This makes it difficult to reconcile the books at the end of the week or the end of the month. It also makes it difficult if the IRS or your tax accountant starts asking questions.~Baruch Labunski, secure rank
7. Not maintaining an emergency fund
“An accounting mistake that most new businesses make is not maintaining an emergency fund. Emergency funds can help bridge the gap between temporarily closing your business and shutting down your business completely. So start contributing a certain amount separately as an emergency fund. ~Thomas Griffin, Optin Monster
8. Forget upcoming taxes
“An accounting mistake new business owners might tend to make is not keeping track of upcoming taxes. It’s possible to estimate how much money you’ll make and set money aside for taxes. , but it’s still important to know when they’re due. If you don’t pay your taxes on time, you could be charged interest and penalties. ~ Blair Williams, MemberPress
9. Understatement of expenses and overstatement of income
“New business owners can make accounting errors due to a lack of experience or knowledge. They may not know how to calculate the correct tax rates or may not know the different types of taxes. The most common mistake is to underestimate their monthly expenses and overestimate their monthly income. This leads to underinvestment in the business and eventually bankruptcy. ~Kristin Kimberly Marquet, Marquet Media, LLC
10. Mix business and personal purchases
“For new business owners, this is understandable. You go to the store to buy office supplies, then add some last-minute purchases from home on the same transaction. However, this could cause a big headache at tax time and you could easily miss an expense that could be deductible. To resolve this issue, always use a separate work and personal account. ~ Shu Saito, all filters
11. Ignoring Small Expenses
“One of the most common accounting mistakes made by new business owners is not accounting for all expenses, especially small ones. This can quickly add up and put your business in financial trouble. To avoid this, be sure to track all of your expenses, no matter how small, from the start. This will help you get your finances under control and keep the business on solid footing.” ~ Tonika Bruce, Manager of Nicely, Inc .
12. Forgetting to keep tabs on everything
“A common accounting mistake made by new business owners is not monitoring their finances enough. This can lead to cash flow problems and other financial problems later. It’s important to learn the basics of reading financial statements and tracking the progress of your business to avoid making this mistake. ~ Syed Balkhi, WPBeginner