Accounting mistakes can cause significant confusion and impact your business. They may result in incorrect financial statements, unpaid bills, and a distorted view of your financial health. No matter their size, these errors can be costly.
A small business owner in New Rochelle hoping to hire a New Rochelle small business accountant should be aware of such accounting blunders. Look at these ten accounting blunders and learn how to avoid them so they don’t negatively impact your profits.
1) Not Reconciling Bank and Credit Card Statements
When understanding one’s business status or growth, Pay attention to your credit card and bank account statements. It’s astounding how even neglecting the thought of looking over one of the bank accounts could cause great havoc in terms of the finances of a firm.
2) Failing to Understand Bookkeeping Practices
A business owner with basic bookkeeping knowledge can identify most problems quickly. When interacting with finance professionals, a person can communicate reasonably effectively. Professional accountants can help you understand things even when they are complicated.
3) Using Inappropriate Virtual Payment Platforms
Venmo and Cash App are casual and appealing but lack buyer/seller protection for business transactions, increasing the risk of disputes. Instead, it is advisable to use reliable payroll software like Bill.com, which offers secure payment features and accounting integration.
4) Ignoring Outstanding Checks
If you forget to factor in outstanding during reconciliations, your account will appear much stronger than it is. Inaccurate spending information can lead to overdrafts and bounced checks. Easy tracking and reconciliation are key solutions.
5) Not correctly tracking AR & AP
Monitoring your AR and AP becomes imperative as your business begins expanding. Automated payable software enables you to track and approve vendor invoices seamlessly. In addition, tracking and paying past-due invoices can help resolve and simplify financial issues.
6) Waiting Until Tax Season to Collect W-9s
Tax season is a frantic rush for everyone, so vendors often hand over W-9 information at the wrong time. This can be avoided if W-9 Forms are submitted whenever a new supplier is enrolled, making the whole 1099 process seamless.
7) Commingling Business and Personal Expenses
Crossing personal and business expenditures is one of the most common blunders one can make while doing business. Combining personal and business expenses can void liability coverage. Maintaining separate business accounts and classifying personal expenses as owner draws is advisable.
8) Reporting Transfers as Income
In most instances, personal accounts transferred to the company account are recorded as income, which is false. This increases revenue and covers up financial losses. Make sure that these transactions are specifically defined as owner investments.
9) Paying LLC Owners as Employees
LLC owners are sole proprietors and partners who do not need to get payroll as W-2 employees. They are better off taking payments as owner’s draws or distributive shares. However, it is alright to have payroll, provided your business is set up as a corporation.
10) Poor Communication with the Finance Team
Business owners and financial teams need to communicate clearly. This applies whether you are working with a professional bookkeeper or an entire team. Getting feedback ensures that the business runs smoothly and errors go unnoticed.
Conclusion
Accounting mistakes are frequent and not new, but they can be avoided. Understanding such weaknesses will help you take the right preventative measures to protect your business’s finances.
QuickBooks and Xero are useful tools for eliminating the possibility of errors, and working with a certified accountant, particularly a small business accountant, also helps. Avoiding these errors ensures proper handling of finances, less risk, and business continuity.
